Mr. Roy M. Mathew, Ms. Nizzy Mathew and Mr. Mathew Muthoottu. For further details refer to the chapter Our Promoters on page 99 GENERAL RISKS

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1 Prospectus September 23, 2014 MUTHOOTTU MINI FINANCIERS LIMITED Our Company was originally incorporated on March 18, 1998 as a private limited company under the provisions of the Companies Act, 1956 as Muthoottu Mini Financiers Private Limited. Our Company was converted into a public limited company with the name Muthoottu Mini Financiers Limited on receipt of a fresh certificate of incorporation consequent to change in status on November 27, 2013 from the Registrar of Companies, Kerala and Lakshadweep. Our Company is Registered as a Non-Banking Financial Company with the Reserve Bank of India under Section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934). Corporate Identity Number issued by the ROC: U65910KL1998PLC Registered Office: 2/994, Muthoottu Buildings, Kozhencherry, Pathanamthitta , Kerala, India; Tel.: ; Fax: ; Corporate Office: Mini Muthoottu Tech Towers, Kaloor, Cochin , Kerala, India; Tel.: ; Fax: Website: For details of changes in Name and Registered Office, please refer to the chapter History and Certain other Corporate Matters on page 90. Compliance Officer and Contact Person: Ms. Priya Menon Tel.: ; Fax: ; cs@minimuthoottu.com PUBLIC ISSUE BY MUTHOOTTU MINI FINANCIERS LIMITED, ( COMPANY OR ISSUER ) OF SECURED, REDEEMABLE, NON- CONVERTIBLE DEBENTURES AND UNSECURED REEDEMABLE NON-CONVERTIBLE DEBENTURES OF FACE VALUE OF `1,000 EACH, ( NCDS ), AGGREGATING UPTO `15,000 LACS, HEREINAFTER REFERRED TO AS THE BASE ISSUE WITH AN OPTION TO RETAIN OVER- SUBSCRIPTION UPTO ` 15,000 LACS AGGREGATING UPTO `30,000 LACS, HEREINAFTER REFERRED TO AS THE OVERALL ISSUE SIZE. THE UNSECURED REEDEMABLE NON-CONVERTIBLE DEBENTURES WILL BE IN THE NATURE OF SUBORDINATED DEBT AND WILL BE ELIGIBLE FOR TIER II CAPITAL. PROMOTERS Mr. Roy M. Mathew, Ms. Nizzy Mathew and Mr. Mathew Muthoottu. For further details refer to the chapter Our Promoters on page 99 GENERAL RISKS Investors are advised to read the Risk Factors carefully before taking an investment decision in the Issue. For taking an investment decision, the investors must rely on their own examination of the Issuer and the Issue, including the risks involved. Specific attention of the investors is invited to the chapter titled Risk Factors on pages 12 to 30. This document has not been and will not be approved by any regulatory authority in India, including the Reserve Bank of India ( RBI ), the Securities and Exchange Board of India ( SEBI ), any Registrar of Companies or any Stock Exchange in India. ISSUER S ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Prospectus contains all information with regard to the Issuer and the Issue, which is material in the context of the Issue, that the information contained in this Prospectus is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. CREDIT RATING The Secured and Unsecured NCDs proposed to be issued under this Issue have been rated BB+ [Double B Plus] by IND-RA for an amount of up to ` 30,000 lacs vide its letter dated September 11, The rating of Secured and the Unsecured NCDs by IND-RA indicates instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. The rating provided by IND-RA may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. These rating are not a recommendation to buy, sell or hold securities and investors should take their own decisions. Please refer to page 231 for the rationale for the above rating. COUPON RATE, COUPON PAYMENT FREQUENCY, MATURITY DATE, MATURITY AMOUNT & ELIGIBLE INVESTORS For details relating to Coupon Rate, Coupon Payment Frequency, Maturity Date and Maturity Amount of the NCDs, please refer to the chapter Terms of the Issue on page 144. For details relating to Eligible Investors please refer to the chapter The Issue on page 43. LISTING The NCDs offered through this Prospectus are proposed to be listed on the BSE Limited ( BSE ). Our Company has obtained in-principle approval for the Issue from BSE vide their letter dated September 22, BSE shall be the Designated Stock Exchange for this Issue. PUBLIC COMMENTS The Draft Prospectus was filed with BSE pursuant to the regulation 6(2) of the SEBI Debt Regulations on September 15, 2014, for public comments for a period of 7 (seven) Working Days i.e. until 5 p.m. on September 22, LEAD MANAGER TO THE ISSUE DEBENTURE TRUSTEE REGISTRAR TO THE ISSUE Vivro Financial Services Private Limited 607/608 Marathon Icon, Opp. Peninsula Corporate Park, Off. Ganpatrao Kadam Marg, Veer Santaji Lane, Lower Parel, Mumbai , Maharashtra, India Tel.: Fax: mmfl@vivro.net Investor Grievance investors@vivro.net Website: Contact Person: Keval Gandhi Compliance Officer: Jayesh Vithlani SEBI Registration No.: INM CIN: U67120GJ1996PTC IL&FS Trust Company Limited The IL&FS Financial Center, Plot No. C 22, G Block, 3rd Floor, Bandra Kurla Complex, Bandra (East), Mumbai , Maharashtra, India Tel: Fax: amit.gurbani@ilfsindia.com Website: www. itclindia.com Contact Person: Amit Gurbani SEBI Registration Number: IND CIN: U66020MH1995PLC Link Intime India Private Limited C- 13 Pannalal Silk Mills Compound, LBS Marg, Bhandup (West), Mumbai , Maharashtra, India Tel: ; Fax: mmfl.ncd3@linkintime.co.in Investor Grievanc mmfl.ncd3@linkintime. co.in Website: Contact Person: Sachin Achar SEBI Registration Number: INR CIN: U67190MH1999PTC ISSUE SCHEDULE Issue Opens on Monday, September 29, 2014 Issue closes on Tuesday, October 28, 2014* *The subscription list for the Issue shall remain open for subscription upto 5pm,with an option for early closure, as may be decided at the discretion of the duly authorised committee of Directors of our Company subject to necessary approvals. In the event of such early closure of the Issue our Company shall ensure that notice of such early closure is given on or before such early date of closure through advertisement/s in a leading national daily newspaper. For further details please refer to General Information Issue Programme on page 37. IL&FS Trust Company Limited has, by its letter dated September 15, 2014, given its consent for its appointment as Debenture Trustee to the Issue and for its name to be included in this Prospectus and in all the subsequent periodical communications sent to the holders of the Debenture issued pursuant to this Issue. For further details please refer to General Information Debenture Trustee on page 33. A copy of this Prospectus and written consents of our Directors, our Company Secretary and Compliance Officer, our Chief Financial Officer, our Auditor, the Lead Manager, the Registrar to the Issue, Escrow Collection Bank(s), Refund Bank, Credit Rating Agency, the legal advisor, the Bankers to our Company, the Debenture Trustee, and the Syndicate Member to act in their respective capacities shall be filed with the Registrar of Companies, Kerala and Lakshadweep, in terms of section 26 of the Companies Act along with the requisite endorsed/certified copies of all requisite documents. For further details please refer to the chapter titled Material Contracts and Documents for Inspection beginning on page 225.

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3 TABLE OF CONTENTS SECTION I - GENERAL... 1 DEFINITIONS AND ABBREVIATIONS... 1 PRESENTATION OF FINANCIAL, INDUSTRY AND OTHER INFORMATION... 9 FORWARD LOOKING STATEMENTS SECTION II - RISK FACTORS SECTION III INTRODUCTION GENERAL INFORMATION SUMMARY OF BUSINESS, STRENGTHS AND STRATEGIES THE ISSUE CAPITAL STRUCTURE STATEMENT OF TAX BENEFITS OBJECTS OF THE ISSUE SECTION IV - ABOUT OUR COMPANY INDUSTRY OUR BUSINESS HISTORY AND CERTAIN OTHER CORPORATE MATTERS OUR MANAGEMENT OUR PROMOTERS SECTION V - FINANCIAL INFORMATION FINANCIAL STATEMENTS MATERIAL DEVELOPMENTS FINANCIAL INDEBTEDNESS SECTION VI ISSUE RELATED INFORMATION ISSUE STRUCTURE TERMS OF THE ISSUE ISSUE PROCEDURE SECTION VII - LEGAL AND OTHER INFORMATION OUTSTANDING LITIGATIONS OTHER REGULATORY AND STATUTORY DISCLOSURES KEY REGULATIONS AND POLICIES SECTION VIII - SUMMARY OF MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION SECTION IX -OTHER INFORMATION MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION DECLARATION ANNEXURE I- DAY COUNT CONVENTION ANNEXURE II - RATING RATIONALE

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5 SECTION I - GENERAL DEFINITIONS AND ABBREVIATIONS Unless the context otherwise requires the following terms shall have the following meanings ascribed thereto in this Prospectus. Reference to any statutes, regulations and policies shall include amendments thereto, from time to time. All references to Issuer, we, and us, our and our Company are to Muthoottu Mini Financiers Limited. Company Related Terms Term Issuer, the Company and our Company AoA / Articles / Articles of Association Board / Board of Directors/ BoD Debenture Committee Corporate Office DIN Equity Shares Existing Lenders Group Companies/ Muthoottu Mini Group Loan Assets Memorandum / MoA / Memorandum of Association Net Loan Assets NBFC Promoters RoC Reformatted Financial Statements Registered Office Statutory Auditors / Auditors Description Muthoottu Mini Financiers Limited having its registered office at 2/994, Muthoottu Buildings, Kozhencherry, Pathanamthitta , Kerala, India Articles of Association of our Company, as amended The Board of Directors of our Company and includes any Committee thereof The committee constituted by the Board of Directors of our Company by a board resolution dated December 10, 2013 Mini Muthoottu Tech Towers, Kaloor, Cochin , Kerala, India Director Identification Number Equity shares of face value of ` 100 each of our Company South Indian Bank Limited, Federal Bank Limited, Dhanalaxmi Bank Limited and State Bank of Travancore Entities, that are ultimately promoted and controlled by Mr. Roy Mathew, Ms. Nizzy Mathew and Mr. Mathew Muthoottu, i.e. Muthoottu Mini Nidhi Limited, Cochin Mini Muthoottu Nidhi Limited, Mini Muthoottu Nidhi Kerala Limited, Muthoottu Mini Hotels Private Limited, Muthoottu Mini Theaters Private Limited, Kandamath Cine Enterprises Private Limited, Mini Muthoottu Credit India Private Limited, Mini Muthoottu Nirman and Real Estate Private Limited, R M M Properties India Private Limited, Kozhencherry Properties India Private Limited, Kozhencherry M M Financial Services Private Limited, Mini Muthoottu Insurance Services Private Limited, India vision Satellite Communications Limited, Amritha Cyber Park Private Limited, Kapico Kerala Resorts Private Limited, Kapico Beach Hotels and Holidays India Private Limited and Yesvision Communications Private Limited Assets under financing activities Memorandum of Association of our Company, as amended Assets under financing activities net of Provision for non-performing assets Non-Banking Financial Company as defined under Section 45-IA of the RBI Act, 1934 Mr. Roy M. Mathew, Ms. Nizzy Mathew and Mr. Mathew Muthoottu The Registrar of Companies, Kerala and Lakshadweep The statement of reformatted audited assets and liabilities of our Company, and the related statement of reformatted statement of profit and loss of our Company and the related statement of reformatted cash flow of our Company as at and for the Financial Years ending March 31, 2014, 2013, 2012, 2011 and 2010, extracted from the audited financial statements as at and for the Financial Years ended March 31, 2014, 2013, 2012, 2011 and 2010 and the notes thereto, as examined Accountants 2/994, Muthoottu Buildings, Kozhencherry, Pathanamthitta , Kerala, India Our statutory auditors being M/s. Vijaykumar & Easwaran, Chartered Accountants 1

6 Issue Related Terms Term Description Allotment / Allotted Unless the context otherwise requires, the allotment of the NCDs pursuant to the Issue to the Allottees pursuant to this issue Allotment Advice The communication sent to the Allottees conveying details of NCDs allotted to the Allottees in accordance with the Basis of Allotment. Allottee The successful Applicant to whom the NCDs are being / have been Allotted pursuant to the Issue Applicant/ Investor Any person who makes an Application pursuant to this Prospectus and the Application Form. For more information on eligibility of the prospective applicant please refer to the chapter titled Issue Procedure on page 149 Application An application to subscribe to NCDs offered pursuant to the Issue by submission of a valid Application Form and payment of the Application Amount by any of the modes as prescribed under this Prospectus. Application Amount Shall mean the amount of money that is paid by the Applicant while making the Application in the Issue by way of a cheque or demand draft or the amount blocked in the ASBA Account Application Form The form used by an Applicant to apply for NCDs being issued through this Prospectus Application Supported by Shall mean the Application (whether physical or electronic) used by an investor to Blocked Amount/ ASBA, make an Application authorizing the SCSB to block the amount payable on ASBA Application Application in its specified bank account; ASBA Account An account maintained with a SCSB which will be blocked by such SCSB to the extent of the Application Amount in relation to the Application Form made in ASBA mode. Bankers to the Issue / The banks which are clearing and registered with SEBI as Bankers to the Issue, with Escrow Collection Banks whom the Escrow Accounts and/or Public Issue Accounts and/or Refund Accounts will be opened as disclosed in the chapter General Information on page 31. Base Issue Public Issue of NCDs by our Company aggregating upto ` 15,000 lacs Basis of Allotment The basis on which NCDs will be allotted to successful applicants under the Issue and which is described in Issue Procedure Basis of Allotment on page 172. Business Days All days excluding Saturdays, Sundays or a public holiday in India or at any other payment centre notified in terms of the Negotiable Instruments Act, CARE Credit Analysis and Research Limited CRISIL CRISIL Limited Debentures/ NCDs/ Bonds Secured Secured Redeemable and Unsecured Subordinated Redeemable Non- Convertible Debentures of face value of ` 1,000 each Debt Listing Agreement The listing agreement between our Company and BSE in connection with the listing of debt securities of our Company Debenture Trusteeship Debenture Trusteeship Agreement dated September 15, 2014 entered into between Agreement our Company and the Debenture Trustee. Deemed Date of The date of issue of the Allotment Advice, or such date as may be determined by Allotment the Board or a duly constituted committee thereof, and notified to the Exchange. All benefits relating to the NCDs including interest on the NCDs shall be available to the investors from the Deemed Date of Allotment. The actual Allotment of NCDs may take place on a date other than the Deemed Date of Allotment Demographic Details The demographic details of an Applicant such as his address, bank account details, category, PAN etc. for printing on refund/interest orders or used for refunding through electronic mode as applicable. Depositories Act The Depositories Act, 1996 Depository(ies) National Securities Depository Limited (NSDL) and /or Central Depository Services (India) Limited (CDSL) DP / Depository A depository participant as defined under the Depositories Act Participant Designated Stock BSE Limited Exchange/ DSE Designated Branches Such branches of the SCSBs which shall collect the Application Forms used by the 2

7 Term Designated Date Draft Prospectus / Draft Offer Document Escrow Agreement Escrow Account Ex-servicemen Existing Debenture Holders IND-RA Institutional Portion Issue Muthoottu Mini Financiers Limited Description ASBA Applicants and a list of which is available at or at such other web-link as may be prescribed by SEBI from time to time The date on which the Escrow Collection Banks transfer the funds from the Escrow Account to the Public Issue Account or the amount blocked by the SCSBs is transferred from the ASBA Accounts specified by the ASBA Applicants to the Public Issue Account, as the case may be, following which the Board of Directors/or duly authorised Committee of Directors approves the Allotment of the NCDs The draft prospectus dated September 15, 2014 filed with the Designated Stock Exchange for receiving public comments in accordance the regulation 6(2) of the SEBI Debt Regulations Agreement dated September 22, 2014 entered into amongst our Company, the Registrar, the Escrow Collection Bank and Lead Manager for collection of the Application Amount and for remitting refunds, if any, of the amounts collected, to the applicants (excluding the ASBA Applicants) on the terms and conditions contained thereof Accounts opened in connection with the Issue with the Escrow Collection Bank(s) and in whose favour the applicant will issue cheques or bank drafts in respect of the Application Amount while submitting the Application Any person who has served in any rank (whether as a combatant or not) in the Armed Forces of the Union of India (i.e. Army, Navy and Air Force), has been released therefrom otherwise than by way of dismissal or discharge on account of misconduct or inefficiency and holding the Ex-Servicemen identity card issued by the Zilla Sainik Board and does not include the spouse or dependents of the person Debenture holders of our Company who hold non-convertible debentures in our Company, issued as on the Issue Opening Date India Ratings & Research Private Limited, a FITCH group Company Portion of Applications received from Category I of persons eligible to apply for the issue which includes Resident Public Financial Institutions as defined in Section 2(72) of the Companies, Statutory Corporations including State Industrial Development Corporations, Scheduled Commercial Banks, Co-operative Banks and Regional Rural Banks, which are authorised to invest in the NCDs, Provident Funds of minimum corpus of ` 2,500 lacs, Pension Funds of minimum corpus of ` 2500 lacs, Superannuation Funds and Gratuity Fund, which are authorised to invest in the NCDs, Venture Capital funds and / or Alternative Investment Funds registered with SEBI; Insurance Companies registered with the IRDA, National Investment Fund (set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government of India and published in the Gazette of India), Insurance funds set up and managed by the Indian army, navy or the air force of the Union of India or by the Department of Posts, India Mutual Funds, registered with SEBI. Public Issue of NCDs by our Company aggregating upto ` 15,000 lacs with an option to retain over-subscription upto ` 15,000 lacs aggregating upto ` 30,000 lacs Issue Opening Date Monday, September 29, 2014 Issue Closing Date Lead Manager Market Lot Maturity Amount NCD Holder/ Debenture Holder Tuesday, October 28, 2014, or such earlier or later date that the Board of Directors/ authorized Committee of the Board of Directors of our Company decide, as the case may be, and communicated to the prospective investors and the Stock Exchange through notice of such early/ late closure given on such early date of closure through advertisement/s in a leading national daily newspaper Vivro Financial Services Private Limited One NCD In respect of NCDs Allotted to Debenture Holders, the repayment of the face value of the NCD alongwith interest that may have accrued as on the Redemption Date Any debenture holder who holds the NCDs issued in this Issue and whose name appears on the beneficial owners list provided by the Depositories (in case of NCDs held in dematerialized form) or whose name appears in the Register of Debenture Holders maintained by our Company/ Registrar (in case of NCDs held in physical 3

8 Term Non-Institutional Portion Prospectus / Offer Document Public Issue Account Record Date Refund Account Refund Bank Registrar to the Issue/Registrar SCSBs or Self Certified Syndicate Banks Security Secured NCDs Secured Debenture Trust Description form). Category II of persons eligible to apply for the Issue which includes Companies falling within the meaning of Section 2(20) of the Companies Act; bodies corporate and societies registered under the applicable laws in India and authorised to invest in the NCDs, Educational institutions and associations of persons and/or bodies established pursuant to or registered under any central or state statutory enactment; which are authorized to invest in the NCDs, Trust Including Public/private charitable/religious trusts which are authorised to invest in the NCDs, Association of Persons, Scientific and/or industrial research organisations, which are authorised to invest in the NCDs, Partnership firms in the name of the partners, Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008 (No. 6 of 2009), Resident Indian individuals and Hindu undivided families through the Karta aggregating to a value exceeding ` 5 lacs This prospectus to be filed with the ROC in accordance with the SEBI Debt Regulations, containing inter alia the coupon rate for the NCDs and certain other information Account opened with the Bankers to the Issue to receive monies from the Escrow Account(s) and from ASBA Accounts with the SCSBs on the Designated Date The record date for payment of interest in connection with the NCDs or repayment of principal in connection therewith shall be 7 days prior to the date on which interest is due and payable, and/or the date of redemption. Provided that trading in the NCDs shall remain suspended between the aforementioned Record Date in connection with redemption of NCDs and the date of redemption or as prescribed by the Stock Exchange, as the case may be. In case Record Date falls on a day when stock exchange is having a trading holiday, the immediate subsequent trading day will be deemed as the Record Date. The account opened with the Escrow Banks, from which refunds, if any, of the whole or part of the Application Amount (excluding the ASBA Applicant) shall be made HDFC Bank Limited Link Intime India Private Limited The banks registered with SEBI under the Securities and Exchange Board of India (Bankers to an Issue) Regulations, 1994 offering services in relation to ASBA, including blocking of an ASBA Account, and a list of which is available on or at such other web-link as may be prescribed by SEBI from time to time. A list of the branches of the SCSBs where ASBA Applications submitted to the Lead Manager, Members of the Syndicate or the Trading Member(s) of the Stock Exchange, will be forwarded by such Lead Manager, Members of the Syndicate or the Trading Members of the Stock Exchange is available at or at such other web-link as may be prescribed by SEBI from time to time The principal amount of the Secured NCDs to be issued in terms of this Prospectus together with all interest due on the Secured NCDs, as well as all costs, charges, all fees, remuneration of Debenture Trustee and expenses payable in respect thereof shall be secured by way of first paripassu charge on immovable property located at Chennai, Tamil Nadu and first charge on current assets, including book debts, loans and advances, cash and bank balance and receivables, both present and future, of our Company ranking pari passu with the existing secured debenture holders of our Company, except those receivables specifically and exclusively charged in favour of the Existing Lenders NCDs offered under this Issue which are redeemable and are secured by a charge on the assets of our Company, namely the NCDs issued under Option I, Option II, Option III, and Option IV as detailed in this Prospectus. The trust deed to be executed by our Company and the Debenture Trustee for 4

9 Term Deed Senior Citizen SEBI Debt Regulations/ Debt Regulations/ SEBI Regulations Stock Exchange Subordinated Debt Syndicate ASBA Syndicate ASBA Application Locations Syndicate SCSB Branches Tier I Capital Tier II Capital Trading Member(s) Tripartite Agreement(s) Trustees / Debenture Description creating the security over the Secured NCDs issued under the Issue. All Applicants who are aged more than 60 years as on or prior to the date of the Issue Opening Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 BSE Limited Subordinated Debt means a fully paid up capital instrument, which is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of the NBFC. The book value of such instrument shall be subjected to discounting as provided hereunder: Remaining maturity of the instruments rate of discount (a) up to one year 100% (b) more than one year but up to two years 80% (c) more than two years but up to three years 60% (d) more than three years but up to four years 40% (e) more than four years but up to five years 20% to the extent such discounted value does not exceed fifty per cent of Tier I capital. An application submitted by an ASBA Applicant through the Members of Syndicate and Trading Members of the Stock Exchange(s) at the Syndicate ASBA Application Locations. Application centres at Mumbai, Chennai, Kolkata, Delhi, Ahmedabad, Rajkot, Jaipur, Bengaluru, Hyderabad, Pune, Vadodara and Surat where the Members of the Syndicate shall accept ASBA Applications. In relation to ASBA Applications submitted to a member of the Syndicate, such branches of the SCSBs at the Syndicate ASBA Application Locations named by the SCSBs to receive deposits of the Application Forms from the members of the Syndicate, and a list of which is available on or at such other website as may be prescribed by SEBI from time to time. Tier I capital means, owned fund as reduced by investment in shares of other NBFCs and in shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten percent of the owned fund. Tier-II capital includes the following: (a) preference shares other than those which are compulsorily convertible into equity; (b) Revaluation reserves at discounted rate of fifty five percent; (c) General provisions and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one and one fourth percent of risk weighted assets (d) Hybrid debt capital instruments; (e) Subordinated debt to the extent the aggregate does not exceed Tier-I capital. and (f) Perpetual debt instruments issued by a systemically important non- deposit taking non-banking financial company which is in excess of what qualifies for Tier I Capital. Individuals or companies registered with SEBI as trading members under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, and who hold the right to trade in stocks listed on stock exchanges, through which investors can buy or sell securities listed on stock exchanges whose list is available on stock exchanges. Agreements entered into between the Issuer, Registrar and each of the Depositories under the terms of which the Depositories shall act as depositories for the securities issued by our Company Trustees for the holders of the NCDs, in this case being IL&FS Trust Company 5

10 Term Trustee Transaction Registration Slip/ TRS Unsecured NCDs Unsecured Debenture Trust Deed Working Days Description Limited The acknowledgement slip or document issued by any of the Members of the Syndicate, the SCSBs, or the Trading Members as the case may be, to an Applicant upon demand as proof of upload of the Application on the application platform of the Stock Exchange. NCDs offered under this Issue which are redeemable and are not secured by any charge on the assets of our Company, namely the NCDs issued under Option V, Option VI and Option VII, which will be in the nature of Subordinated Debt and will be eligible for Tier II capital, as detailed in this Prospectus. The trust deed executed by the Company and the Debenture Trustee specifiying, inter alia, the powers, authorities, and obligations of the Debenture Trustee and the Company in relation to the Unsecured NCDs. All days other than a Sunday or a public holiday in Mumbai or Kochi on which commercial banks are open for business, except with reference to Issue Period, where working day shall mean all days, excluding Saturdays, Sundays and public holidays, which are working days for commercial banks in India Business/Industry Related Terms Term Description ALM Asset Liability Management ALCO Asset Liability Committee ATS Average Ticket Size Average Cost of Borrowing Amount that is calculated by dividing the interest paid during the period by average of the monthly outstanding Capital Market Finance Loans against Securities, Margin Funding, IPO financing and other structured lending transactions CRAR Capital-to-Risk-Weighted Assets Ratio DPN Demand Promissory Note DSA Direct Sales Agent FIR First Information Report Gross Spread Yield on the average minus the cost of funds KYC/ KYC Norms Customer identification procedure for opening of accounts and monitoring transactions of suspicious nature followed by NBFCs for the purpose of reporting it to appropriate authority LC Loan Company Loan Book Outstanding loans net of provisions made for NPAs LTV Loan to value NAV Net Asset Value Non-Deposit Accepting Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential NBFC Directions Norms (Reserve Bank) Directions, 2007 NBFC Non-Banking Financial Company as defined under Section 45-IA of the RBI Act, 1934 NBFC-D NBFC registered as a deposit accepting NBFC NBFC-ND NBFC registered as a non-deposit accepting NBFC NBFC-ND-SI Systemically Important NBFC-ND NPA Non-Performing Asset Prudential Norms Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 Secured Loan Book Secured loan given against hypothecation of asset SME Small and Medium Enterprises 1 st Public Issue Public issue of secured non-convertible debentures of face value ` 1, each aggregating to ` 20,000 lacs pursuant to the prospectus dated February 12, nd Public Issue Public issue of secured and unsecured non-convertible debentures of face value ` 1,000 each aggregating to ` 24,963 lacs pursuant to the prospectus dated July 7,

11 Conventional and General Terms or Abbreviations Term Description Act / Companies Act The Companies Act, 2013 (to the extent notified) read with rules framed by the Government of India from time to time 1956 Act/ Companies The Companies Act, 1956 Act, 1956 AGM Annual General Meeting BSE BSE Limited CAGR Compounded Annual Growth Rate CDSL Central Depository Services (India) Limited DIN Director Identification Number DRR Debenture Redemption Reserve EGM Extraordinary General Meeting EPS Earnings Per Share FDI Policy FDI in an Indian company is governed by the provisions of the FEMA read with the FEMA Regulations and the Foreign Direct Investment Policy FEMA Foreign Exchange Management Act, 1999 FEMA Regulations Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 FPI Foreign Institutional Investors defined under the SEBI (Foreign Institutional Investors) Regulations, 1995 registered with SEBI and as repealed by Foreign Portfolio Investors defines under the SEBI (Foreign Portfolio Investors) Regulations, 2014 Financial Year / FY Financial Year ending March 31 GDP Gross Domestic Product GoI Government of India G-Sec Government Securities HUF Hindu Undivided Family IFRS International Financial Reporting Standards IFSC Indian Financial System Code Indian GAAP Generally Accepted Accounting Principles in India IRDA Insurance Regulatory and Development Authority IT Act The Income Tax Act, 1961 IT Information Technology KYC Know Your Customer MCA Ministry of Corporate Affairs, Government of India MICR Magnetic Ink Character Recognition MIS Management Information System MoU Memorandum of Understanding NECS National Electronic Clearing Services NEFT National Electronic Funds Transfer NII(s) Non-Institutional Investor(s) NIM Net Interest Margin NRI Non Resident Indian NSDL National Securities Depository Limited PAN Permanent Account Number RBI The Reserve Bank of India RBI Act The Reserve Bank of India Act, 1934 RM Relationship Manager RTGS Real Time Gross Settlement SBI State Bank of India SCRA Securities Contracts (Regulation) Act, 1956 SCRR The Securities Contracts (Regulation) Rules, 1957 SEBI The Securities and Exchange Board of India constituted under the Securities and Exchange Board of India Act, 1992 SEBI Act The Securities and Exchange Board of India Act, 1992 TDS Tax Deducted at Source 7

12 WDM Term Wholesale Debt Market Description Notwithstanding the foregoing: 1. In the chapter titled Summary of Main Provisions of the Articles of Association beginning on page 204, defined terms have the meaning given to such terms in that section. 2. In the chapter titled Financial Statements beginning on page 100, defined terms have the meaning given to such terms in that chapter. 3. In the paragraphs titled Disclaimer Clause of SEBI beginning on page 186 and Disclaimer Clause of BSE beginning on page 187 in the chapter Other Regulatory and Statutory Disclosures beginning on page 186 defined terms shall have the meaning given to such terms in those paragraphs. 4. In the chapter titled Statement of Tax Benefits beginning on page 53, defined terms have the meaning given to such terms in that chapter. 5. In the chapter titled Key Regulations and Policies beginning on page 194, defined terms have the meaning given to such terms in that chapter. 6. In the chapter titled Our Business beginning on page 74, defined terms have the meaning given to such terms in that chapter. 8

13 Certain Conventions Muthoottu Mini Financiers Limited PRESENTATION OF FINANCIAL, INDUSTRY AND OTHER INFORMATION In this Prospectus, unless otherwise specified or the context otherwise indicates or implies the terms, all references to Muthoottu Mini, Issuer, we, us, our and our Company are to Muthoottu Mini Financiers Limited. Our Company has no subsidiaries or associate companies as on the date of this Prospectus. All references to India are to the Republic of India and its territories and possessions and all references to the Government or the State Government are to the Government of India, central or state, as applicable. Financial Data accordance with Indian GAAP and the Companies Act, The Reformatted Financial Statements are included in this Prospectus alongwith the examination reports on the & Easwaran, Chartered Accountants in the chapter titled Financial Statements beginning at page 100. Unless stated otherwise, the financial data in this Prospectus is derived from our audited financial statements, prepared in accordance with Indian GAAP and the Companies Act, 1956 for the financial years ended on March 31, 2014, 2013, 2012, 2011 and In this Prospectus, any discrepancies in any table, including Capital Structure and Objects of the Issue between the total and the sum of the amounts listed are due to rounding off. All the decimals have been rounded off to two decimal places. There are significant differences between Indian GAAP, US GAAP and IFRS. We urge you to consult your own advisors regarding such differences and their impact on our financial data. Accordingly, the degree to which the Indian GAAP financial statements included in this Prospectus will provide meaningful information is entirely Indian accounting practices on the financial disclosures presented in this Prospectus should accordingly be limited. Currency and units of Presentation In this ` are to Indian Rupees, the official currency of the Republic of India. Except where stated otherwise in this lacs Lacs Industry and Market Data Unless stated otherwise, industry and market data used throughout this Prospectus has been obtained from industry publications. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Accordingly no investment decision should be made on the basis of such information. Although our Company believes that industry data used in this Prospectus is reliable, it has not been independently verified. Also, data from these sources may not be comparable. Similarly, internal reports, while believed by us to be reliable, have not been verified by any independent sources. The extent to which the market and industry data used in this familiarity with and understanding of the methodologies used in compiling such data. 9

14 FORWARD LOOKING STATEMENTS This Prospectus contains certain statements that are not statements of historical fact and are in the nature of forward-looking statements. These forward-looking statements generally can be identified by words or phrases such as aim, anticipate, believe, continue, expect, estimate, intend, objective, plan, potential, project, will, will continue, will pursue, will likely result, will seek to, seek or other words or phrases of similar import. All statements regarding our expected financial condition and results of operations and business plans and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, revenue and profitability and other matters discussed in this Prospectus that are not historical facts. All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results, performance or achievements to differ materially from those contemplated by the relevant statement. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, regulatory changes pertaining to our businesses and our ability to respond to them, our ability to successfully implement our strategies, our growth and expansion, technological changes, our exposure to market risks, general economic and political conditions in India and which have an impact on our business activities or investments, the monetary and fiscal policies of India, inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic laws, regulations and taxes and changes in competition in our industry. Important factors that could cause actual results to differ materially from our expectations include, but not limited to, the following: Any increase in the levels of non-performing assets (NPA) on our loan portfolio, for any reason whatsoever, would adversely affect our business and results of operations; Any volatility in interest rates which could cause our Gross Spreads to decline and consequently affect our profitability; Changes in the value of Rupee and other currency changes; Unanticipated turbulence in interest rates or other rates or prices; the performance of the financial and capital markets in India and globally; Changes in political conditions in India; The rate of growth of our Loan Assets; The outcome of any legal or regulatory proceedings we are or may become a party to; Changes in Indian and/or foreign laws and regulations, including tax, accounting, banking, securities, insurance and other regulations; changes in competition and the pricing environment in India; and regional or general changes in asset valuations; Any changes in connection with policies, statutory provisions, regulations and/or RBI directions in connection with NBFCs, including laws that impact our lending rates and our ability to enforce our collateral; Emergence of new competitors; Performance of the Indian debt and equity markets; Occurrence of natural calamities or natural disasters affecting the areas in which our Company has operations; The performance of the financial markets in India and globally; Our ability to attract and retain qualified personnel; and Other factors discussed in this Prospectus, including under the chapter titled Risk Factors beginning on page 12. For further discussion of factors that could cause our actual results to differ from our expectations, please refer to the section titled Risk Factors and chapters titled Industry and Our Business beginning on pages 12, 61 and 74 respectively. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Forward looking statements speak only as on the date of this Prospectus. The forward- 10

15 looking statements contained in this Prospectus are based on the beliefs of management, as well as the assumptions made by and information currently available to management. Although we believe that the expectations reflected in such forward-looking statements are reasonable at this time, it cannot assure investors that such expectations will prove to be correct or will hold good at all times. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialise, or if any of our underlying assumptions prove to be incorrect, our actual results of operations or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. Neither our Company or the Lead Manager, nor any of their respective affiliates has any obligation to, and do not intend to, update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. Our Company and Lead Manager will ensure that investors in India are informed of material developments until the time of the grant of listing and trading permission by the Stock Exchange. 11

16 SECTION II - RISK FACTORS An investment in NCDs involves a certain degree of risk. You should carefully consider all the information contained in this Prospectus, including the risks and uncertainties described below, and the information provided in the sections titled Our Business on page 74 and Financial Statements on page 100 before making an investment decision. The risk factors set forth below do not purport to be complete or comprehensive in terms of all the risk factors that may arise in connection with our business or any decision to purchase, own or dispose of the NCDs. The following risk factors are determined on the basis of their materiality. In determining the materiality of risk factors, we have considered risks which may not be material individually but may be material when considered collectively, which may have a qualitative impact though not quantitative, which may not be material at present but may have a material impact in the future. Additional risks, which are currently unknown or now deemed immaterial, if materialises, may in the future have a material adverse effect on our business, financial condition and results of operations. The market prices of the NCDs could decline due to such risks and you may lose all or part of your investment including interest thereon. Unless specified or quantified in the relevant risk factors below, we are not in a position to quantify the financial or other implication of any of the risks described in this section. This Prospectus also contains forward-looking statements that involve risks and uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including events described below and elsewhere in this Prospectus. Unless otherwise stated, the financial information used in this section is derived from and should be read in conjunction with reformatted financial statements of our Company as of and for the Financial Year ended March 31, 2014, March 2013, March 31, 2012, March 31, 2011 and March 31, 2010, in each case prepared in accordance with Indian GAAP, including the annexure and notes thereto. Internal Risk Factors 1. Our Company has received a show cause notice dated July 25, 2014 from the Reserve Bank of India interalia alleging violation of the RBI directions and circulars. Incase RBI decides to take action against our Company our reputation may suffer. Any punitive action by RBI could in turn result in material adverse effect on our business, prospect and results of operations. Our Company has received a show cause notice dated July 25, 2014 from the Reserve Bank of India interalia alleging that our Company had inter-alia not maintained the CRAR at the minimum required level, permitted premature closure of debentures at any time after their issue even within one year, violations of LTV Ratio requirements, issue of loans against NCDs issued, renewal of NCDs under private placement for amount less than ` 25 lacs, non adherence of fair practices code, deficiencies in gold auction process, non disclosure in the balance sheet, not communicating changes in Board to the RBI and non disclosure of related party transactions, and as to why a penalty of ` 5 lacs should not be imposed on our Company. Our Company replied to the SCN vide letter dated August 7, 2013 clarifying on all the observations made in the SCN. may restrict our Company from undertaking the business of NBFC. Further, we may be subject to similar inspections in the future and any adverse actions may affect our business and operations. 2. Our Company has received a show cause notice dated July 2, 2013 from the Reserve Bank of India interalia alleging violation of the RBI Circular IDMD.DOD.10/11/01/01(A)/ dated June 23, 2010 and RBI Circular DNBS CC.PD.No.225/03/10.01/ dated December 30, 2011 (SCN). Incase RBI decides to take action against our Company our ability to conduct business may be severely affected, which could in turn result in material adverse effect on our business, prospect and results of operations. Our Company has received a show cause notice dated July 2, 2013 from the Reserve Bank of India interalia alleging that our Company had inter-alia permitted premature closure of debentures at any time after their issue even within one year, our Company was providing different rates of interest for premature closures, several matured NCDs had not been repaid to investors, Company has repaid NCDs aggregating to ` 2,853 lacs prematurely and NCDs worth ` 164 lacs were closed before 90 days of issue, Company had deviated from the terms in the debenture trust deed by giving loans against the NCDs, the company was also alleged layed at the branches, and as to why a penalty of 12

17 ` 5 lacs should not be imposed on our Company. Our Company replied to the SCN vide letter dated July 12, 2013 clarifying all the allegations made in the SCN. Subsequently, RBI vide notice dated August 8, 2013 (RBI Letter) has directed the Managing Director and each of the directors of our Company to whom the SCN was issued to furnish the reply in their individual capacities within seven days in response to which Mr. Roy M Mathew, Ms. Nizzy Mathew and Mr. Mathew Muthoottu (Directors of our Company) furnished their response to RBI. RBI has vide letter dated April 21, 2014, issued in response to our letter dated July 12, 2013, instructed our Company to refrain from violation of RBI directions by not accepting public deposits camouflaging it in any manner, failing which RBI can take necessary action and our registration as an NBFC is liable to be cancelled. In case RBIpasses an adverse order, it may restrict our Company from undertaking the business of NBFC. Further, we may be subject to similar inspections in the future and any adverse actions may affect our business and operations. 3. We and our Directors are subject to certain legal proceedings and any adverse decision in such proceedings may have a material adverse effect on our business and results of operations. We and our Directors are subject to certain legal proceedings including civil suits, consumer litigations, recovery proceedings etc. We incur cost in defending these proceedings before a court of law. Moreover, we are unable to assure you that we or our Directors shall be successful in any or all of these actions. In the event we or our Directors suffer any adverse order, our reputation may suffer and may have an adverse impact on our business and results of operations. Further, our Company has initiated certain criminal proceeding against certain of our employees and third parties in relation to our business operations. For further details of the legal proceedings that we are subject to, please refer to the chapter titled Outstanding Litigations on page renewal or renewal on unfavourable terms of this licensing agreement or any negative impact on the results of operations The Muthoottu Mini logo is registered with the Registrar of Trademarks in India under Class 36 in the name of our group company Mini Muthoottu Nidhi (Kerala) Limited, a Muthoottu Mini Group company. The trademark has been licensed to us for use on a nonexclusive, non-assignable basis by way of an assignment letter dated May 2, We cannot assure you that we will continue to have the uninterrupted use and enjoyment of the Muthoottu Mini logo if we are unable to confirm with the requirements under the assignment letter. Further, renewal of the agreement may be on terms and conditions that are unfavorable to us. Termination or withdrawal of the permission, may adversely affect our business, reputation, goodwill, financial condition and results of operations. Further, all the other companies owned by our Promoters also use the Muthoottu Mini name and logo. If any of the actions of our Promoters or companies owned by them negatively affect the Muthoottu Mini brand, our reputation, business and financial condition may in turn be adversely affected. 5. Our business is capital intensive and any disruption or restrictions in raising financial resources would have a material adverse effect on our liquidity and financial condition. Our liquidity and ongoing profitability is largely dependent upon our timely access to and the costs associated in raising resources. Our funding requirements historically have been met from a combination of borrowings such as term loans and working capital limits from banks from banks, and issuance of secured, redeemable non-convertible debentures on private placement basis. Thus, our business depends and will continue to depend on our ability to access diversified low cost funding sources. Our ability to raise funds on acceptable terms and at competitive rates continues to depend on various factors including our credit ratings, the regulatory environment and policy initiatives in India, developments in the international markets affecting the Indian economy, investors' and/or lenders' perception of demand for debt and equity securities of NBFCs, and our current and future results of operations and financial condition. 13

18 The crisis in the global credit market that began in mid-2007 destabilized the then prevailing lending model by banks and financial institutions. The capital and lending markets were highly volatile and access to liquidity had been significantly reduced. In addition, it became more difficult to renew loans and facilities as many potential lenders and counterparties also faced liquidity and capital concerns as a result of the stress in the financial markets. If any event of similar nature and magnitude occurs again in the future, it may result in increased borrowing costs and difficulty in accessing debt in a cost-effective manner. Moreover, we are a NBFC-ND-SI, and do not have access to public deposits. The RBI has issued guidelines DBOD.BP.BC.No. 106/ / on May 18, 2012 whereby it has instructed banks to (i) reduce their regulatory exposure on a single NBFC having gold loans to the extent of 50.00% or more of its financial assets from 10.00% to 7.50% of their capital funds; and (ii) have an internal sub-limit as decided by the Boards of the respective banks on their aggregate exposure to all such NBFCs having gold loans to the extent of 50% or more of their financial assets, taken together, which sub-limit should be within the internal limits fixed by banks for their aggregate exposure to all NBFCs taken together. The RBI vide its circular RBI/ /560 DNBD(PD) CC No. 330/ / dated June 27, 2013 and RBI/ /115 DNBS(PD) CC No.349/ / dated July 2, 2013 issued certain guidelines with respect to raising money through private placement by NBFCs in the form of nonconvertible debentures. These guidelines include restrictions on the number of investors in an issue to 49 investors, minimum subscription amount for a single investor of ` 25 lacs and in multiples of ` 10 lacs thereafter, prohibition on providing loan against its own debentures, etc. This has resulted in limiting the A significant portion of our debt matures each year. Out of our total outstanding nonconvertible debentures ` 1,42,579 lacs issued by our Company as of August 31, 2014, non-convertible debentures amounting upto ` 51,640 lacs will mature during the next 12 months. In order to retire these instruments, we either will need to refinance this debt, which could be difficult in the event of volatility in the credit markets, or raise equity capital or generate sufficient cash to retire the debt. Changes in economic and financial conditions or continuing lack of liquidity in the market could make it difficult for us to access funds at competitive rates. As an NBFC, we also face certain restrictions on our ability to raise money from international markets, which may further constrain our ability to raise funds at attractive rates. Any disruption in our primary funding sources at competitive costs and would have a material adverse effect on our liquidity and financial condition. 6. Our financial performance is primarily dependent on interest rate risk. If we are unable to manage interest rate risk in the future it could have an adverse effect on our net interest margin, thereby adversely affecting business and financial condition of our company. Our results of operations are substantially dependent upon the level of our Net Interest Margins. Income from operations is the largest component of our total income, and constituted 99.77%, 99.75% and 99.88% of our total income in Financial Years 2012, 2013 and 2014, respectively. Interest rates are sensitive to many factors beyond our control, including the RBIs monetary policies, domestic and international economic and political conditions and other factors. Over the last several years, the Government of India has substantially deregulated the financial sector. As a result, interest rates are now primarily determined by the market, which has increased the interest rate risk exposure of all banks and financial intermediaries in India, including us. Our policy is to attempt to balance the proportion of our interest earning assets, which bear fixed interest rates, with interest bearing liabilities. A significant portion of our liabilities, such as our NCDs carry fixed rates of interest and the remaining are linked to the respective banks benchmark prime lending rate/base rate. As of March 31, 2014, 85.47% of our borrowings were at fixed rates of interest. Moreover, we do not hedge our exposure to interest rate changes. We cannot assure you that we can adequately manage our interest rate risk in the future or can effectively balance the proportion of our fixed rate loan assets and 14

19 liabilities. Further, changes in interest rates could affect the interest rates charged on interest earning assets and the interest rates paid on interest bearing liabilities in different ways. Thus, our results of operations could be affected by changes in interest rates and the timing of any re pricing of our liabilities compared with the re pricing of our assets. In a rising interest rate environment, if the yield on our interest earning assets does not increase at the same time or to the same extent as our cost of funds, or, in a declining interest rate environment, if our cost of funds does not decline at the same time or to the same extent as the yield on our interest earning assets, our net interest income and net interest margin would be adversely affected. 7. We face increasing competition in our business which may result in declining interest margins. If we are unable to compete successfully, our market share may also decline. Our principal business is providing Gold Loan to retail customers in India secured by used household gold jewellery. Historically, the Gold Loan industry in India has been largely unorganised and dominated by local jewellery pawn shops and money lenders, with little involvement from public sector or private sector banks. Gold Loan financing was availed predominantly by lower income group customers with limited or no access to other forms of credit, however, such income group has gained increased access to capital through organised and unorganised money lenders, which has increased our exposure to competition. The demand for Gold Loans has also increased due to relatively lower and affordable interest rates, increased need for urgent borrowing or bridge financing requirements, the need for liquidity for assets held in gold and increased awareness and acceptance of Gold Loan financing. All of these factors have resulted in increased competition from other lenders in the Gold Loan industry, and current deposits. We are reliant on higher cost loans and debentures for our funding requirements, which may reduce our margins compared to competitors. Our ability to compete effectively will depend, to some extent, on our ability to raise low cost funding in the future. If we are unable to compete effectively with other participants in the Gold Loan industry, our business, financial condition and results of operations may be adversely affected. Furthermore, as a result of increased competition in the Gold Loan industry, Gold Loans are becoming increasingly standardised. Variable interest rates, variable payment terms and waiver of processing fees are also becoming increasingly common. We cannot assure you that we will be able to react effectively to these or other market developments or compete effectively with new and existing competitors. Increasing competition may have an adverse effect on our business, market share and results of operations. 8. Our Company has not filed the half yearly unaudited account along with the limited review report with BSE, as stipulated under the Debt Listing Agreement. Non-convertible debentures of our Company were listed on BSE on April 2, 2014 pursuant to our maiden public issue of non-convertible debentures in the Financial Year Our Company has entered into the Debt Listing Agreement pursuant to the listing of the non-convertible debentures. The Debt Listing Agreement permits our Company to not to publish the half-yearly unaudited financial results for the last half year if its intimates to the exchange in advance that it shall report the audited annual results within 60 days of the end of the financial year. As our Company got listed on April 2, 2014 and no prior intimation was made to BSE, our Company was required to submit the half yearly unaudited account alongwith the limited review report. Our Company has not filed the half yearly unaudited account alongwith the limited review report, however, our Company has filed the audited annual accounts of the Company within 60 days of the end of the financial year. If the BSE undertakes any action against our Company, it would have a material adverse effect on our reputation. 9. We may not be able to realise the full value of our pledged gold jewellery in case of a default, which exposes us to a potential loss. We may not be able to realise the full value of our pledged gold jewellery, due to, among other things, defects in the quality of gold. We have in place a strict internal policy on determining the quality of gold 15

20 prior to disbursement of the Gold Loan. However, we cannot assure that methods followed by us are foolproof and the impurity levels in the gold can be accurately assessed. In the case of a default, we may auction the pledged gold. We cannot assure you that we will be able to auction such pledged gold jewellery at prices sufficient to cover the amounts under default. Moreover, there may be delays associated with the auction process. Any failure to recover the expected value of pledged gold could expose us to a potential loss. Any such losses could adversely affect our financial condition and results of operations. Further we also extend loans secured by gold jewellery provided as collateral by the customer. An economic downturn or sharp downward movement in the price of gold could result in a fall in collateral value. In the event of any decrease in the price of gold, customers may not repay their loans and the value of collateral gold jewellery securing the loans may have decreased significantly in value, resulting in losses which we may not be able to support. Although we use a technology based risk management system and follow strict internal risk management guidelines on portfolio monitoring, which include periodic assessment of loan to security value on the basis of conservative market price levels, limits on the amount of margin, ageing analysis and predetermined loan closure call thresholds, no assurance can be given that if the price of gold decreases significantly, our financial condition and results of operations would not be adversely affected. The impact on our financial position and results of operations of a decrease in gold values cannot be reasonably estimated because the market and competitive response to changes in gold values is not pre determinable. 10. Our ability to lend against the collateral of gold jewellery has been restricted on account of guidelines issued by RBI, which may have a negative impact on our business and results of operation. RBI vide notification DNBS.CC.PD.No. 365/ / dated January 8, 2014 has stipulated all NBFCs to maintain a loan to value (LTV) ratio not exceeding 75 percent for loans granted against the collateral of gold jewellery and further prohibits lending against bullion/primary gold and gold coins. This notification will limit our ability to provide loan on the collateral of gold jewellery and thereby putting us at a disadvantage vis-à-vis unregulated money lenders offering similar products. Further, RBI by way of notification DNBS.CC.PD.No. 265/ / dated March 21, 2012, has mandated NBFCs primarily engaged in lending against gold jewellery (such loans comprising 50% or more of their financial assets) to maintain a minimum Tier 1 capital of 12%. Such restrictions imposed by RBI may erode our margins, impact our growth and business prospects. RBI vide notification DNBS.CC.PD.No.356 / / dated September 16, 2013 further tightened the norms for lending against the security of gold ornaments by pegging the maximum lendable value (LTV) to 30 day moving average closing price of 22 carat gold quoted by India Bullion and Jewellers Association Limited (formerly known as Bombay Bullion Association Limited). 11. As on March 31, 2012 our CRAR fell below the RBI prescribed minimum CRAR of 15%. We corrected the position during and and achieved a CRAR of 16.63% as on March 31, 2013 and 20.84% as on March 31, Inability to maintain CRAR in the future may invite action from RBI and could restrict our future business growth, which may materially affect our business. As per extant RBI norms, from March 31, 2011, all systemically important NBFCs are required to maintain a minimum Capital to Risk-Weighted Assets Ratio of at least 15% of their risk-weighted assets. Further, RBI has introduced minimum Tier I capital requirement of 12% to be effective from April 1, 2014 for NBFCs primarily for whom loans against gold jewellery comprise more than 50% of their financial assets, including us. prescribed by RBI. While we have put in place measures to ensure that the CRAR does not fall below this prescribed minimum, inability to maintain CRAR in the future may invite action from RBI including penalty and suspension of our certificate of registration as a NBFC and any such action taken may have an adverse effect on our business, market share and results of operations. Further, our capital adequacy ratio has increased to 16.63% and 20.84% as of March 31, 2013 and March 31, 2014, with Tier I capital comprising of 15.75% and 20.48%, respectively. If we continue to grow our 16

21 loan portfolio and asset base, we will be required to raise additional Tier I and Tier II capital in order to continue to meet applicable capital adequacy ratios and Tier I capital requirements with respect to our business of Gold Loans. There can be no assurance that we will be able to maintain adequate capital adequacy ratio or Tier I capital by raising additional capital in the future on terms favourable to us, or at all. Failure to maintain adequate capital adequacy ratio or Tier I capital may adversely affect the growth of our business. Further, any regulatory change in capital adequacy requirements imposed by the RBI may have an adverse effect on our results of operation. 12. We may not be able to successfully sustain our growth strategy. Inability to effectively manage our growth and related issues could materially and adversely affect our business and impact our future financial performance. We have expanded our operations since We have experienced considerable growth in terms of our loans portfolio and the number of our branches and employees. Our income from operations increased from ` lacs in the Financial Year ended March 31, 2009 to ` 35, lacs in the Financial Year ended March 31, 2014 thereby achieving compounded annual growth rate (CAGR) of %. In this same period, the value of loans advanced by us against pledged gold increased from ` 6, lacs for the Financial Year ended March 31, 2009 to ` 1,76, lacs for the Financial Year ended March 31, 2014 at a CAGR of 91.12%. Our growth strategy includes growing our loan book, expanding network of branches and expanding the range of products and services. We cannot assure you that we will be able to execute our growth strategy successfully or continue to achieve or grow the levels of net profit earned in recent years, or that we will be able to expand further our loan book. Furthermore, there may not be sufficient demand for our services or they may not generate sufficient revenues relative to the costs associated with offering such services. Even if we were able to introduce new services successfully, there can be no assurance that we will be able to achieve our intended return on such investments. If we grow our loan book too rapidly or fail to make proper assessments of credit risks associated with borrowers, a higher percentage of our loans may become non-performing, which would have a negative impact on the quality of our assets and our financial condition. Further principal component of our strategy is to continue to grow by expanding the size and geographical scope of our businesses. This growth strategy will place significant demands on our management, financial and other resources. It will require us to continuously develop and improve our operational, financial and internal controls. It also includes undertaking permission from various authorities, including RBI and various regulatory compliances. Continuous expansion increases the challenges involved in financial management, recruitment, training and retaining high quality human resources, preserving our culture, values and entrepreneurial environment, and developing and improving our internal administrative infrastructure. Failure to train our employees properly may result in an increase in employee attrition rates, require additional hiring, erode the quality of customer service, divert management resources, increase our exposure to high risk credit and impose significant costs on us. 13. Our indebtedness and the conditions and restrictions imposed by our financing agreements could restrict our ability to conduct our business and operations in the manner we desire. As of August 31, 2014, we had an outstanding debt of ` 1,49,411 lacs. We may incur additional indebtedness in the future. Many of our financing agreements include various restrictive conditions and covenants restricting certain corporate actions, and our Company is required to take the prior approval of the lender before carrying out such activities. For instance, our Company, inter alia, is required to obtain the prior written consent in the following instances: to declare and/ or pay dividend to any of its shareholders whether equity or preference, during any financial year unless our Company has paid to the lender the dues payable by our Company in that year; to undertake or permit any merger, amalgamation or compromise with its shareholders, creditors or effect any scheme of amalgamation or reconstruction or disposal of whole of the undertaking; to create or permit any charges or lien, sell or dispose off any encumbered assets; to alter its capital structure, or otherwise acquire any share capital; to effect a change of ownership or control, or management of our Company; 17

22 to enter into long term contractual obligations directly affecting the financial position of our Company; to borrow or obtain credit facilities from any bank or financial institution; to undertake any guarantee obligations on behalf of any other company; to make any share capital investments or advance loans or funds to any other concern including group companies; Repayment of dues of promoter/group companies; To undertake any new project/ further expansion or acquire fixed assets except those indicated in the funds flow statement submitted to the bank from time to time and approved by the bank; Sell, assign, mortgage or otherwise dispose of any of the fixed assets charged to the Banks; Change of practice with regard to remuneration of the directors; Our indebtedness could have several important consequences, including our cash flows being used towards repayment of our existing debt, which will reduce the availability of our cash flow to fund our working capital, capital expenditures and other general corporate requirements. Moreover, our ability to obtain additional financing in the future at reasonable terms may be restricted or our cost of borrowings may increase due to sudden adverse market conditions, including decreased availability of credit or fluctuations in interest rates, particularly because a significant proportion of our financing arrangements are in the form of borrowings from banks. There could be a material adverse effect on our business, financial condition and results of operations if we are unable to service our indebtedness or otherwise comply with financial and other covenants specified in the financing agreements and we may be more vulnerable to economic downturns, which may limit our ability to withstand competitive pressures and may reduce our flexibility in responding to changing business, regulatory and economic conditions. 14. A major part of our branch network is concentrated in southern India and any disruption or downturn in the economy of the region would adversely affect our operations. As of August 31, 2014, 97.15% of our branches i.e. 1,023 branches are located in the four southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu and these states constituted 97.60% of our total Gold Loan portfolio as of August 31, For details please refer to Our Business on page 74. Any disruption, disturbance or breakdown in these states could adversely affect the result of our business and operations. Our concentration in these southern states of India exposes us to adverse economic or political circumstances that may arise in that region as compared to other NBFCs and commercial banks that may have diversified national presence and may have an adverse effect on our business, market share and results of operations. Further, RBI by way of circular dated September 16, 2013 has made it mandatory for NBFC having more than 1,000 branches to obtain prior approval of RBI. This would result in delay in us branching out of the southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu into rest of India resulting in continuing exposure for us to adverse economic or political circumstances that may arise in that region which, may have an adverse effect on our business, market share and results of operations. 15. Our bank funding is concentrated amongst a few lenders and impairment of our relationship with any, or all, of such lenders or our inability to secure loans on favourable terms from such lenders in the future, may have a material adverse effect on our business, results of operations and financial condition. As on August 31, 2014, we have working capital limits of ` 16,500 lacs from the South Indian Bank Limited, ` 4,000 lacs from State Bank of Travancore, ` 2,500 lacs from Federal Bank Limited, ` 2,400 lacs from Dhanalaxmi Bank Limited. We may have difficulty in obtaining funding on acceptable terms from these or other lenders and other sources which we have not accessed so far. Any impairment of our relationship with any, or all, of our lenders or our inability to secure loans on favourable terms from such lenders in future may have a material adverse effect on our business, results of operations and financial condition. 16. Our Gold Loans are due within one year of disbursement, and a failure to disburse new loans may result in a reduction of our loan portfolio and a corresponding decrease in our interest income. The Gold Loans we offer are short term loans and are due within one year of disbursement. The relatively short term nature of our loans means that we are not assured of long term interest income streams compared 18

23 to other products like home loans, business loans, etc. that offer loans with longer terms. In addition, our existing customers may not obtain new loans from us upon maturity of their existing loans, particularly if competition increases. The short term nature of our loan products and the potential instability of our interest income could materially and adversely affect our results of operations and financial position. 17. Inaccurate appraisal of gold by our personnel may adversely affect our business and financial condition Accurate appraisal of pledged gold is a significant factor in the successful operation of our business and such appraisal requires a skilled and reliable workforce. Assessing gold jewellery quickly is a specialised skill that requires assessing jewellery for gold content and quality manually without damaging the jewellery. Our Company provides training for our personnel for assessing jewellery for gold content and quality. However, in spite of rigorous training there is no guarantee that the gold ornaments appraised are accurately. Inaccurate appraisal of gold content, by our workforce may result in the gold ornament being overvalued and pledged for a loan that is higher in value than the actual value of gold content, which could adversely affect our reputation and business. We also run the risk of spurious gold being incorrectly assessed and approved for disbursement. Further, we are subject to the risk of inaccurate or fraudulent estimation of the value of pledged gold by our gold appraisers. Any such inaccuracies or fraud in relation to our appraisal of gold may adversely affect our reputation, business and financial condition. 18. We depend on customer supplied information when evaluating customer credit worthiness In deciding whether to extend credit or enter into other transactions with customers and counter parties, we may rely on information furnished to us by or on behalf of our customers, including the financial information from which we create our credit assessments. We may also rely on customer representations as to the accuracy and completeness of customer supplied information. Any relevant changes in this information may not be made available to us. The information that we have gathered may not be sufficient to create a complete customer risk profile. Because we rely on such customer supplied information, some or all of certain customers risk profiles may be willfully or inadvertently wrong or misleading, which may lead us to enter into transactions that may adversely affect our financial condition and results of operations. 19. The implementation of our KYC norms as well as our measures to prevent money laundering may not be completely effective, which could adversely affect our reputation and in turn have an adverse impact on our business and results of operations Our implementation of anti-money laundering measures required by the RBI, including KYC policies and the adoption of anti-money laundering and compliance procedures in all our branches, may not be completely effective. There can be no assurance that attempts to launder money using us as a vehicle will not be made. If we were identified to be associated with money laundering operations, our reputation may be adversely affected, which in turn could have an adverse impact on our business and results of operations 20. Our customer base comprises entirely of individual borrowers, who generally are more likely to be affected by declining economic conditions than large corporate borrowers. Any decline in the repayment capabilities of our borrowers, may result in increase in defaults, thereby adversely affecting our business and financial condition. Individual borrowers typically are less financially resilient than larger corporate borrowers, and as a result, they are typically more adversely affected by declining economic conditions. In addition, a significant majority of our customer base belongs to the low to medium income group. Furthermore, unlike many developed economies, a nationwide credit bureau has only recently become operational in India, so there is less financial information available about individuals, particularly our focus customer segment of the low to medium income group. It is therefore difficult to carry out precise credit risk analyses on our customers. While we follow certain procedures to evaluate the credit profile of our customers before we sanction a loan, we generally rely on the quality of the pledged gold rather than on a stringent analysis of the credit profile of our customers. Although we believe that our risk management controls are sufficient, we cannot be certain that they will continue to be sufficient or that additional risk management policies for individual borrowers will not be required. Failure to maintain sufficient credit assessment policies, particularly for individual borrowers, could adversely affect our loan portfolio, which could in turn have an adverse effect on our financial condition and results of operations. 19

24 21. Our branches are vulnerable to theft and burglary. While we are insured against the risk of burglary arising from our business, such insurance may not be sufficient to fully cover the losses we suffer and this may result in adverse effect on our financial condition and results of operations. Storage of pledged gold jewellery as part of our business entails the risk of theft/ burglary and resulting loss to our reputation and business. The short tenure of the loans advanced by us and our practice of processing loan repayments within short timelines require us to store pledged gold on our premises at all points in time. Some of our branches have had instances of burglaries in the past. With regard to all cases of theft/ burglaries, we may not be able to recover the entire amount of the loss suffered and may receive only a partial payment of the insurance claim. While we are insured against the risk of burglary arising from our business, such insurance may not be sufficient to fully cover the losses we suffer. Further, the actual recovery of the insured amount from the insurer requires the undertaking of certain procedures, and any delay in recovery could adversely affect our reputation and results of operation. 22. We are subject to the risk of fraud by our employees, agents and customers We are exposed to the risk of fraud and other misconduct by employees and customers. While we carefully recruit all of our employees and screen all our employees who are responsible for disbursement of Gold Loans and custody of gold, there have in the past been acts of fraud with respect to Gold Loans and cash related misappropriation committed by our employees. Our customers have also committed such acts of fraud and misappropriation. We are required to report cases of internal fraud to the RBI, which may take appropriate action. While we have risk monitoring policies in place, we cannot guarantee you that such acts will not be committed in the future, and any such act could adversely affect our reputation, business and results of operations. 23. We are subject to the risk of unknowingly receiving stolen goods as collateral from customers which may result in loss of collateral for the loan disbursed We have in place a policy in place to satisfy ownership of the gold jewellery and have taken adequate steps to ensure that the KYC guidelines stipulated by RBI are followed and due diligence of the customer is undertaken prior to the disbursement of loans. However, in the event that we unknowingly receive stolen goods as collateral from a customer, the goods can be seized by authorities. Once seized by the authorities, gold items will be stored in court storage facilities without a surety arrangement. No recourse is generally available to our Company in the event of such seizure, except the recovery of the loss from the customer. Any seizure of the gold ornaments by the authorities shall result in us losing the collateral for the loan disbursed and could adversely affect our reputation, business and results of operations. 24. Our insurance may not be adequate to protect us against all potential losses to which we may be subjected to and if we were to incur a significant liability for which we were not fully insured, it could adversely affect our business, results of operations and financial conditions We maintain insurance cover for our gold stock and cash with our branches, and cash in transit, against theft, loss or damage by fire as well as against natural calamities including earthquake and floods. As on August 31, 2014 our Company has a total insurance cover of ` 221,577 lacs. While we exercise due care in taking out adequate cover, given the nature of fluctuating gold prices, the amount of our insurance coverage may be less than the replacement cost of all covered property and may not be sufficient to cover all financial losses that we may suffer should a risk materialise. There are many events that could significantly affect our operations, or expose us to third party liabilities, for which we may not be adequately insured. If we were to incur a significant liability for which we were not fully insured, it could adversely affect our business, results of operations and financial condition. 25. We may experience difficulties in expanding our business into additional geographical markets in India, which may adversely affect our business prospects, financial conditions and results of operations. While the Gold Loans markets in the south Indian states of Kerala, Tamil Nadu, Karnataka and Andhra Pradesh remains and is expected to remain our primary strategic focus, we also evaluate attractive growth opportunities in other regions in India and have expanded our operations in the northern and western states 20

25 of India. We may not be able to leverage our experience in the states that we are present in to expand our operations in other regions, should we decide to further expand our operations. Factors such as competition, culture, regulatory regimes, business practices and customs, customer attitude, sentimental attachments towards gold jewellery, behavior and preferences in these cities where we may plan to expand our operations may differ from those in south Indian states of Kerala, Tamil Nadu, Andhra Pradesh and Karnataka and our experience in these states of Kerala, Tamil Nadu, Andhra Pradesh and Karnataka may not provide us with benefits in other geographies. In addition, as we enter new markets and geographical areas, we are likely to compete not only with other large banks and financial institutions in the Gold Loan business, but also the local unorganised or semi-organised lenders, who are more familiar with local conditions, business practices and customs, have stronger relationships with customers and may have a more established brand name within local communities. If we plan to further expand our geographical footprint, our business may be exposed to various additional challenges, including obtaining necessary governmental approvals, identifying and collaborating with local business partners with whom we may have no previous working relationship; successfully gauging market conditions in new markets; attracting potential customers; being susceptible to local laws in new geographical areas of India; and adapting our marketing strategy and operations to suit regions where different languages are spoken. Our inability to expand our current operations in additional geographical markets may adversely affect our growth, business prospects, financial conditions and results of operations. 26. System failures or inadequacy and security breaches in computer systems may adversely affect our operations and result in financial loss, disruption of our businesses, regulatory intervention or damage to our reputation. We are vulnerable to risks arising from the failure of employees to adhere to approved procedures, failures of security systems, computer system disruptions, communication systems failure and data interception during transmission through external communication channels and networks. Failure to prevent or detect such breaches in security or data and communications errors may adversely affect our operations. Despite our internal controls, policies and procedures, certain matters such as fraud and embezzlement cannot be eliminated entirely given the cash nature of our business. If we fail to maintain and continue to enhance our internal controls, policies and systems, we may be unable to prevent fraud, security breaches or system failures. Our business is increasingly dependent on our ability to process, on a daily basis, a large number of transactions. Our financial, accounting or other data processing systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services. If any of these systems do not operate properly or are disabled, or if there are other shortcomings or failures in our internal processes or systems, financial loss, disruption of our business, regulatory intervention or damage to our reputation may result. In addition, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our businesses and the localities in which we are located. Our operations also rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could compromise data integrity and security. Constant connectivity between our branches across India and our corporate office is key to the functioning of our business. Each of our branches accesses the corporate data centre through the Internet, and all data is stored centrally in the Corporate data centre. Data is replicated at our disaster recovery centres in Mumbai and Pune. Our disaster recovery system is fully operational and we continue to engage in technical exercises to test and improve our disaster plan. 27. Our ability to access capital also depends on our credit ratings. Any downgrade in our credit ratings would increase borrowing costs and constrain our access to capital and lending markets and, as a result, would negatively affect our net interest margin and our business. The cost and availability of capital is also dependent on our short term and long term credit ratings. We have been assigned a IND BB+ rating by IND-RA for this Issue. Further our Company has been rated in the past with a CARE BB+ rating by CARE for Secured Redeemable Non-Convertible Debentures of ` 21

26 20,000 lacs rating by IND-RA for Secured and Unsecured Redeemable Non-Convertible Debentures of ` 25,000 lacs and CARE BB+ rating by CARE for long term bank facilities of ` 50,000 lacs nancial strength, operating performance, strategic position, and ability to meet our obligations. Any downgrade of our credit ratings would increase borrowing costs and constrain our access to debt and bank lending markets and, as a result, would adversely affect our business. In addition, downgrades of our credit ratings could increase the possibility of additional terms and conditions being added to any new or replacement of financing arrangements. For details regarding ratings received by our Company, please refer to Our Business - Our Borrowings and Credit Ratings on page We may be subject to regulations in respect of provisioning for non-performing assets. If such provisions are not sufficient to provide adequate cover for loan losses that may occur, this could have an adverse effect on our financial condition, liquidity and results of operations. RBI guidelines prescribe the provisioning required in respect of our outstanding loan portfolio. These provisioning requirements may require us to reserve lower amounts than the provisioning requirements applicable to financial institutions and banks in other countries. The provisioning requirements may also require the exercise of subjective judgments of management. There are multiple factors that affect the level of NPAs in our Company. Prominent among them are fall in value of gold, increase in the LTV ratio for gold loan etc. The level of our provisions may not be adequate to cover further increases in the amount of our nonperforming assets or a decrease in the value of the underlying gold collateral. If such provisions are not sufficient to provide adequate cover for loan losses that may occur, or if we are required to increase our provisions, this could have an adverse effect on our financial condition, liquidity and results of operations and may require us to raise additional capital. For further details, please refer to Our Business - Nonperforming Assets (NPAs) on page We are subject to supervision and regulation by the RBI as a non-deposit-taking systemically important NBFC. In case of any adverse change in the regulations, we may have to comply with stricter regulations and guidelines issued by regulatory authorities in India which may adversely affect our business, results of operation and financial condition. We are regulated principally by and have reporting obligations to the RBI. We are also subject to the corporate, taxation and other laws in effect in India. The regulatory and legal framework governing us may con existing rules and regulations have been modified, new rules and regulations have been enacted and reforms have been implemented which are intended to provide Loan industry. Moreover, new regulations may be passed that restrict our ability to do business. Further, the RBI has recently amended the Prudential Norms. The amendments now make it compulsory for NBFCs that are primarily engaged in lending against gold jewellery, to maintain a loan to value ratio not exceeding 75% for loans granted against the collateral of gold jewellery and to disclose in their balance sheet the percentage of such loans to their total assets. The amendments also require that such NBFCs having gold loans at least 50% of their financial assets maintain a minimum Tier I capital of 12% from April 1, 2014 and stipulate that they shall not grant any advance against bullion/primary gold and gold coins. The RBI has also reviewed its guidelines on the Fair Practice Code for all NBFCs, which among other things, cover general principles relating to adequate disclosures on the terms and conditions of loans and adopting non-coercive recovery methods. These amendments further require NBFCs engaged in extending loans against jewellery to put in place adequate internal policies to ensure, among other things, proper assessment procedures for the jewellery received as collateral, internal control mechanisms for ascertaining the ownership of gold jewellery, procedures in relation to storage and safeguard and insurance of gold jewellery and adequate measures for prevention of fraudulent transactions. RBI vide its circular RBI/ /260 DNBS.CC.PD.No.356 / / dated September 16,

27 and notifications DNBS(PD).263 /CGM (NSV)-2013 and DNBS(PD).264 /CGM (NSV)-2013 both dated September 16, 2013 has implemented the following (i) Verification of the ownership of gold by NBFC before disbursement, (ii) Standardization of value of gold accepted as collateral in arriving at LTV ratio, (iii) Prior approval of RBI for opening branches in excess of 1,000 in number, (iv) Appropriate Infrastructure for Storage of Gold Ornaments (v) requirement of copy of the PAN Card of the borrower for all transaction above ` 5 lacs (vi) High value loans of ` 1 lac and above must only be disbursed by cheque, (vii) Documentation across all branches must be standardized, (viii) NBFCs shall not issue misleading advertisements like claiming the availability of loans in a matter of 2-3 minutes. The RBI vide its circular RBI/ /560 DNBD(PD) CC No. 330/ / dated June 27, 2013 and RBI/ /115 DNBS(PD) CC No.349/ / dated July 2, 2013 issued certain guidelines with respect to raising money through private placement by NBFCs in the form of nonconvertible debentures. These guidelines include restrictions on the number of investors in an issue to 49 investors, minimum subscription amount for a single investor of ` 25 lacs and in multiples of ` 10 lacs thereafter, prohibition on providing loan against own debentures, etc. This has resulted in limiting the Compliance with many of the regulations applicable to our operations may involve significant costs and otherwise may impose restrictions on our operations. We cannot assure you that we will not be subject to any adverse regulatory action in the future. Further, these regulations are subject to frequent amendments and depend upon government policy. Our present operations may not meet all regulatory requirements or subsequent regulatory amendments. If the interpretation of the regulators and authorities varies from our interpretation, we may be subject to penalties and the business of our Company could be adversely affected. There can be no assurance that changes in these regulations and the enforcement of existing and future rules by governmental and regulatory authorities will not adversely affect our business, results of operation and financial condition. 30. Our ability to borrow from various banks may be restricted on account of guidelines issued by the RBI imposing restrictions on banks in relation to their exposure to NBFCs. Any limitation on our ability to borrow from such banks may increase our cost of borrowing, which could adversely impact our growth, business and financial condition. Under RBI Master Circular on bank finance to NBFCs issued on July 2, 2012, the exposure (both lending and investment, including off balance sheet exposures) of a bank to a single NBFC engaged in lending against collateral of gold jewellery (i.e. such loans comprising 50 per cent or more of its financial assets) should not exceed 7.50%, of the bank's capital funds. Banks may, however, assume exposures on a single NBFC up to 12.50%, of their capital funds provided the exposure in excess of 7.50% is on account of funds on-lent by the NBFC to the infrastructure sector. Further, banks may also consider fixing internal limits for their aggregate exposure to all NBFCs put together and should include internal sub-limit to all NBFCs providing Gold Loans (i.e. such loans comprising 50 per cent or more of their financial assets), including us. This limits the exposure that banks may have on NBFCs such as us, which may restrict our ability to borrow from such banks and may increase our cost of borrowing, which could adversely impact our growth, business and financial condition. 31. Attrition rate in our business is quite high and in order to be successful, we must attract, retain and motivate key employees, and failure to do so could adversely affect our business. Failure to hire key executives or employees could have a significant impact on our operations. In order to be successful, we are required to attract, train, motivate and retain highly skilled employees, especially branch managers and gold assessment technical personnel. If we cannot hire additional personnel or retain existing qualified personnel, our ability to expand our business will be impaired and our revenue could decline. Hiring and retaining qualified and skilled managers and sales representatives are critical to our future, and competition for experienced employees in the Gold Loan industry can be intense. In addition, we may not be able to hire and retain enough skilled and experienced employees to replace those who leave, or may not be able to re-deploy and retain our employees to keep pace with continuing changes 23

28 in technology, evolving standards and changing customer preferences. The failure to hire key executives or employees could have a significant impact on our operations. 32. We have entered into certain transactions with related parties. Any transaction with related parties may involve conflicts of interest. We have entered into transactions with several related parties, including our Promoters, Directors and related entities. We can give no assurance that we could not have achieved more favourable terms had such transactions not been entered into with related parties. Furthermore, it is likely that we will enter into related party transactions in the future. There can be no assurance that such transactions, individually or in the aggregate, will not have an adverse effect on our financial condition and results of operations. The transactions we have entered into and any future transactions with our related parties have involved or could potentially involve conflicts of interest. For details regarding our related party transactions entered into by us as on March 31, 2014, please refer to Financial Information on page We have not entered into any definitive agreements to utilise a substantial portion of the net proceeds of the Issue. We intend to use the Net Proceeds for the purposes described in Objects of the Issue on page 59. Our management will have broad discretion to use the Net Proceeds and you will be relying on the judgment of our management regarding the application of these Net Proceeds. Our funding requirements are based on current conditions and are subject to change in light of changes in external circumstances or in our financial condition, business or strategy. Our management, in response to the competitive and dynamic nature of the industry, will have the discretion to revise its business plan from time to time. Any such change in our plans may require rescheduling of our current plans or discontinuing existing plans and an increase or decrease in the fund requirements for the objects, at the discretion of the management. Pending utilisation for the purposes described above, we intend to temporarily invest the funds in interest bearing liquid instruments including deposits with banks and investments in liquid (not equity) mutual funds. Such investments would be in accordance with the investment policies approved by our Board from time to time. 34. Our Promoters, Directors and related entities have interests in a number of entities, which are in businesses similar to ours and this may result in potential conflicts of interest with us. Certain decisions concerning our operations or financial structure may present conflicts of interest among our Promoters, other shareholders, Directors, executive officers and the holders of Equity Shares. Our Promoters, Directors and related entities have interests in the following entities that are engaged in businesses similar to ours: 1) Mini Muthoottu Nidhi Kerala Limited 2) Cochin Mini Muthoottu Nidhi Limited 3) Muthoottu Mini Nidhi Limited Commercial transactions in the future between us and related parties could result in conflicting interests. A conflict of interest may occur directly or indirectly between our business and the business of our Promoters which could have an adverse effect on our operations. Conflicts of interest may also arise out of common business objectives shared by us, our Promoters, Directors and their related entities. Our Promoters, Directors and their related entities may compete with us and have no obligation to direct any opportunities to us. There can be no assurance that these or other conflicts of interest will be resolved in an impartial manner. 35. Most of our branch premises are acquired on lease. Any termination of arrangements for lease of our branches or our failure to renew the same in a favourable, timely manner, could adversely affect our business and results of operations. As on August 31, 2014 we had 1,053 branches in eight states. Most of our branches are located on leased premises. If any of the owners of these premises does not renew an agreement under which we occupy the 24

29 premises, attempts to evict us or seeks to renew an agreement on terms and conditions non-acceptable to us, we may suffer a disruption in our operations or increased costs, or both, which may adversely affect our business and results of operations. 36. We are required to comply with the requirements of certain labour laws which may impose additional costs on us. Our branches are required to be registered under the relevant shops and establishments laws and verifications under Standards of Weights and Measures Act, 1976 of the states in which they are located. The shops and establishment laws regulate various employment conditions, including working hours, holidays, leave and overtime compensation. Some of our branches have not applied for such registration and other branches have pending applications for registration. If we fail to obtain or retain any of these approvals, exemptions or licenses, or renewals thereof, in a timely manner, or at all, our business may be adversely affected. If we fail to comply, or a regulator claims we have not complied, with any conditions, our certificate of registration may be suspended or cancelled and we may not be able to carry on such activities. In addition, our employees are required to be registered under the provisions of certain labour laws such as the Employees State Insurance Act, 1948, the Payment of Gratuity Act, 1972 the Kerala Shops and Commercial Establishments Act, 1960, the Kerala Labour Welfare Fund Act, 1975, and the Employees Provident Fund and Miscellaneous Provisions Act, We are also required to maintain certain records under the provisions of these laws, which add to our costs. Certain claims have also been raised against us for non-compliance with the provisions of the Minimum Wages Act, If we are subject to penalties under these labour laws or if we do not obtain the requisite approvals, our business, financial condition and results of operations may be adversely affected. 37. Our inability to obtain, renew or maintain our statutory and regulatory permits and approvals required to operate our business may have a material adverse effect on our business, financial condition and results of operations. NBFCs in India are subject to strict regulations and supervision by the RBI. In addition to the numerous conditions required for the registration as a NBFC with the RBI, we are required to maintain certain statutory and regulatory permits and approvals for our business. In the future, we will be required to renew such permits and approvals and obtain new permits and approvals for any proposed operations. There can be no assurance that the relevant authorities will issue any of such permits or approvals in the time-frame anticipated by us or at all. Failure by us to renew, maintain or obtain the required permits or approvals may result in the interruption of our operations and may have a material adverse effect on our business, financial condition and results of operations. In addition, our branches are required to be registered under the relevant shops and establishments laws of the states in which they are located. The shops and establishment laws regulate various employment conditions, including working hours, holidays and leave and overtime compensation. Some of our branches have not applied for such registration while other branches still have applications for registration pending. If we fail to obtain or retain any of these approvals or licenses, or renewals thereof, in a timely manner, or at all, our business may be adversely affected. If we fail to comply, or a regulator claims we have not complied, with any of these conditions, our certificate of registration may be suspended or cancelled and we shall not be able to carry on such activities. RISKS PERTAINING TO THIS ISSUE 38. We are required to create a debenture redemption reserve equivalent to 25% of the value of the NCD offered through this Issue and we may not have access to adequate funds to redeem the full quantum of the NCDs at the closure of the redemption period Section 117C of the Act states that any company that intends to issue debentures must create a DRR to which adequate amounts shall be credited out of the profits of the company until the debentures are redeemed. The Ministry of Corporate Affairs has, through its circular dated April 18, 2002, (the DRR Circular), specified that the quantum of DRR to be created before the redemption liability actually arises in 25

30 rued interest, (if not already paid), till the debentures are redeemed and cancelled. The Circular however further specifies that, for NBFCs like our Company, (NBFCs which are registered with the RBI under section 45-IA of the RBI Act), the adequacy of the DRR will be 25% of the value of debentures issued through the public issue and outstanding. Subsequently, on February 11, 2013, the MCA vide circular number 04/2013, reduced the DRR requirement for NBFCs which are registered with the RBI under section 45-IA of the RBI Act, 1934 to 25%. Accordingly our Company is required to create a DRR of 25% of the value of debentures issued through the public issue and outstanding. As further clarified by the DRR Circular, the amount to be credited as DRR will be carved out of the profits of the company only and there is no obligation on the part of the company to create DRR if there is no profit for the particular year. Accordingly, if we are unable to generate adequate profits, the DRR created by us may not be adequate to meet the 25% of the value of the NCDs issued and outstanding with the public. Every company required to create or maintain DRR shall before the 30 th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than 15% of the amount of its debentures maturing during the year ending on the 31st day of March, following in any one or more of the following, namely: (a) in deposits with any scheduled bank, free from charge or lien (b) in unencumbered securities of the Central Government or of any State Government; (c) in unencumbered securities mentioned in clauses (a) to (d) and(ee) of section 20 of the Indian Trusts Act, 1882; (d) in unencumbered bonds issued by any other company which is notified under clause (f) of section 20 of the Indian Trusts Act, The amount deposited or invested, as the case may be, shall not be utilized for any purpose other than for the repayment of debentures maturing during the year referred to above, provided that the amount remaining deposited or invested, as the case may be, shall not at any time fall below 15% of the amount of debentures maturing during the 3l st day of March of that year. This may have a bearing on the timely redemption of the NCDs by our Company. 39. Changes in interest rates may affect the price of our NCDs. All securities where a fixed rate of interest is offered, such as our NCDs, are subject to price risk. The price of such securities will vary inversely with changes in prevailing interest rates, i.e. when interest rates rise, prices of fixed income securities fall and when interest rates drop, the prices increase. The extent of fall or rise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in the level of prevailing interest rates. Increased rates of interest, which frequently accompany inflation and/or a growing economy, are likely to have a negative effect on the price of our NCDs. 40. You may not be able to recover, on a timely basis or at all, the full value of the outstanding amounts and/or the interest accrued thereon in connection with the NCDs. Failure or delay to recover the expected value from a sale or disposition of the assets charged as security in connection with the Secured NCDs could expose you to a potential loss. Our ability to pay interest accrued on the NCDs and/or the principal amount outstanding from time to time in connection therewith would be subject to various factors interalia including our financial condition, profitability and the general economic conditions in India and in the global financial markets. We cannot assure you that we would be able to repay the principal amount outstanding from time to time on the NCDs and/or the interest accrued thereon in a timely manner or at all. Further, incase of Secured NCDs, although our Company will create appropriate security in favour of the Debenture Trustee for the Secured Debenture Holders on the assets adequate to ensure % asset cover for the Secured NCDs, which shall be free from any encumbrances, the realisable value of the assets charged as security, when liquidated, may be lower than the outstanding principal and/or interest accrued thereon in connection with the Secured NCDs. A failure or delay to recover the expected value from a sale or disposition of the assets charged as security in connection with the Secured NCDs could expose you to a potential loss. 26

31 41. There is no assurance that the NCDs issued pursuant to this Issue will be listed on BSE Limited in a timely manner, or at all. In accordance with Indian law and practice, permission for listing and trading of the NCD issued pursuant to this issue will not be granted until after the NCDs have been issued and allotted. Approval for listing and trading will require all relevant documents authorizing the issue of NCDs to be submitted. There could be a failure or delay in listing the NCDs in BSE. 42. There may be no active market for the NCDs on the retail debt market/capital market segment of the BSE. As a result the liquidity and market prices of the NCDs may fail to develop and may accordingly be adversely affected. There can be no assurance that an active market for the NCDs will develop. If an active market for the NCDs fails to develop or be sustained, the liquidity and market prices of the NCDs may be adversely affected. The market price of the NCDs would depend on various factors inter alia including (i) the interest rate on similar securities available in the market and the general interest rate scenario in the country, (ii) the market price of our Equity Shares, (iii) the market for listed debt securities, (iv) general economic conditions, and, (v) our financial performance, growth prospects and results of operations. The aforementioned factors may adversely affect the liquidity and market price of the NCDs, which may trade at a discount to the price at which you purchase the NCDs and/or be relatively illiquid. 43. There may be a delay in making refund to Applicants. We cannot assure you that the monies refundable to you, on account of (i) withdrawal of your applications, or (ii) oversubscription, (iii) technical rejections (iv) partial allotment or (v) failure to obtain the final approval from the BSE for listing of the NCDs, will be refunded to you in a timely manner. We however, shall refund such monies, with any interest due and payable thereon as prescribed under applicable statutory and/or regulatory provisions. 44. Our Company may raise further borrowings and charge its assets after receipt of necessary consents from its existing lenders. In such a scenario, the Debenture Holders holding Secured NCDs will rank pari passu with other creditors and to that extent, may reduce the amounts recoverable by the Debenture Holderup or liquidation Our Company may, subject to receipt of all necessary consents from its existing lenders and the Debenture Trustee to the Issue, raise further borrowings and charge its assets. Our Company is free to decide the nature of security that may be provided for future borrowings. In such a scenario, the Debenture Holders holding Secured NCDs will rank pari passu with other creditors and to that extent, may reduce the amounts recoverable by the Debenture Holderding up or liquidation. 45. Payments to be made on the NCDs will be subordinated to certain tax and other liabilities preferred by law. In the event of bankruptcy, liquidation or winding up, there may not be sufficient assets remaining to pay amounts due on the NCDs. The Secured NCDs will be subordinated to certain liabilities preferred by law such as the claims of the Government on account of taxes, and certain liabilities incurred in the ordinary course of our business. In particular, in the event of bankruptcy, liquidation or winding pay obligations on the Secured NCDs only after all of those liabilities that rank senior to these Secured NCDs have been paid as per section 530 of the Companies Act, 1956 or section 327 of the Companies act 2013, whichever applicable. In the event of bankruptcy, liquidation or winding up, there may not be sufficient assets remaining to pay amounts due on the Secured NCDs. 46. The fund requirement and deployment mentioned in the Objects of the Issue have not been appraised by any bank or financial institution. We intend to use the proceeds of the Issue, after meeting the expenditures of and related to the Issue, for our various financing activities including but not limiting to lending and investments, to repay our existing loans and our business operations including for our capital expenditure and working capital requirements. 27

32 For further details, please refer to the Objects of the Issue at page 59. The fund requirement and deployment is based on internal management estimates and has not been appraised by any bank or financial institution. The management will have significant flexibility in applying the proceeds received by us from the Issue. Further, as per the provisions of the Debt Regulations, we are not required to appoint a monitoring agency and therefore no monitoring agency has been appointed for the Issue. 47. There are certain risks in connection with the Unsecured NCDs. The Unsecured NCDs will be in the nature of Subordinated Debt and hence the claims of the holders thereof will be subordinated to the claims of other secured and other unsecured creditors of our Company. Further, since no charge upon the assets of our Company would be created in connection with the the Unsecured NCDs, in the event of default in connection therewith, the holders of Unsecured NCDs may not be able to recover their principal amount and/or the interest accrued thereoin in a timely manner, for the entire value of the Unsecured NCDs held by them or at all. Accordingly, in such a case the holders of the Unsecured NCDs may lose all or a part of their investment therein External Risk Factors 48. Our results of operations have been, and may continue to be, adversely affected by Indian and international financial market and economic conditions. Our business is highly dependent on Indian and international markets and economic conditions. Such conditions in India include fluctuations in interest rates; changes in consumer spending; the level of consumer confidence; housing prices; corporate or other scandals that reduce confidence in the financial markets, among others. International markets and economic conditions include the liquidity of global financial markets, the level and volatility of debt and equity prices and interest rates, investor sentiment, inflation, the availability and cost of capital and credit, and the degree to which international economies are expanding or experiencing recessionary pressures. The independent and/or collective fluctuation of these conditions can directly and indirectly affect demand for our lending finance and other financial products, or increase the cost to provide such products. In addition, adverse economic conditions, such as declines in housing values, could lead to an increase in mortgage and other home loan delinquencies and higher writeoffs, which can adversely affect our earnings. Global financial markets were and continue to be extremely volatile and were materially and adversely affected by a significant lack of liquidity, decreased confidence in the financial sector, disruptions in the credit markets, reduced business activity, rising unemployment, declining home prices and erosion of consumer confidence. These factors have contributed to and may continue to adversely affect our business, financial condition and results of operations. 49. Financial difficulties and other problems in certain financial institutions in India could cause our business to suffer and adversely affect our results of operations. We are exposed to the risks of the Indian financial system, which in turn may be affected by financial difficulties and other problems faced by certain Indian financial institutions. Certain Indian financial institutions have experienced difficulties during recent years. Some co-operative banks (which tend to operate in rural sector) have also faced serious financial and liquidity crises. There has been a trend towards consolidation with weaker banks and NBFCs being merged with stronger entities. The problems faced by individual Indian financial institutions and any instability in or difficulties faced by the Indian financial system generally could create adverse market perception about Indian financial institutions, banks and NBFCs. This in turn could adversely affect our business, our future financial performance, our 50. Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries could adversely affect the financial markets and our business Terrorist attacks and other acts of violence or war may negatively affect our business and may also adversely affect the worldwide financial markets. These acts may also result in a loss of business 28

33 confidence. In addition, any deterioration in relations between India and its neighboring countries might result in investor concern about stability in the region, which could adversely affect our business. India has also witnessed civil disturbances in recent years and it is possible that future civil unrest as well as other adverse social, economic and political events in India could have a negative impact on us. Such incidents could also create a greater perception that investment in Indian companies involves a higher degree of risk and could have an adverse impact on our business and the market price of our NCDs. 51. Natural calamities could have a negative impact on the Indian economy, particularly the agriculture sector, and cause our business to suffer India has experienced natural calamities such as earthquakes, a tsunami, floods and drought in the past few years. The extent and severity of these natural disasters determines their impact on the Indian economy. The erratic progress of the monsoon in 2012 affected sowing operations for certain crops. Further, prolonged spells of below normal rainfall or other natural calamities could have a negative impact on the Indian economy thereby, adversely affecting our business. 52. ncy could have a negative impact on our business. agencies may adversely impact our ability to raise additional financing, the interest rates and other commercial terms at which such additional financing is available. This could have a material adverse effect on our business and financial performance, our ability to raise financing for onward lending and the price of our NCDs. 53. Instability of economic policies and the political situation in India could adversely affect the fortunes of the industry There is no assurance that the liberalization policies of the government will continue in the future. Protests against privatization could slow down the pace of liberalization and deregulation. The Government of India plays an important role by regulating the policies and regulations that govern the private sector. The current economic policies of the government may change at a later date. The pace of economic liberalization could change and specific laws and policies affecting the industry and other policies affecting investments in our deregulation policies could disrupt business and economic conditions in India and thereby affect our Unstable domestic as well as international political environment could impact the economic performance in the short term as well as the long term. The Government of India has pursued the economic liberalization policies including relaxing restrictions on the private sector over the past several years. The Government has also announced polices and taken initiatives that support continued economic liberalization. The Government has traditionally exercised and continues to exercise a significant influence over many rates, changes in Government policy, taxation, social and civil unrest but also by other political, economic or other developments in or affecting India. 54. Companies operating in India are subject to a variety of central and state government taxes and surcharges. Tax and other levies imposed by the central and state governments in India that affect our tax liability include: (i) central and state taxes and other levies; (ii) income tax; (iii) value added tax; (iv) turnover tax; (v) service tax; (vi) stamp duty; and (vii) other special taxes and surcharges which are introduced on a temporary or permanent basis from time to time. Moreover, the central and state tax scheme in India is extensive and subject to change from time to time. For example, a new tax code is proposed to be introduced in the Indian Parliament. 29

34 The statutory corporate income tax in India, which includes a surcharge on the tax and an education cess on the tax and the surcharge, is currently %. The central or state government may in the future increase the corporate income tax it imposes. Any such future increases or amendments may affect the overall tax efficiency of companies operating in India and may result in significant additional taxes becoming payable. Additional tax exposure could adversely affect our business and results of operations. PROMINENT NOTES 1. This is a public issue of Secured and Unsecured NCDs by our Company aggregating upto ` 15,000 lacs with an option to retain over-subscription upto ` 15,000 lacs, aggregating upto ` 30,000 lacs. The Unsecured NCDs will be in the nature of the Subordinated Debt and will be eligible for Tier II capital. 2. Our Management and Capital Structure beginning on pages 91 and 47, respectively. 3. Our Company has entered into certain related party transactions, within the meaning of AS 18, as notified under the Companies (Accounting Standards) Rules, 2006 and disclosed in the chapter titled Financial Statements beginning on page Any clarification or information relating to the Issue shall be made available by the Lead Manager and our Company to the investors at large and no selective or additional information would be available for a section of investors in any manner whatsoever. 5. Investors may contact the Registrar to the Issue, Compliance Officer and Lead Manager for any complaints pertaining to the Issue. In case of any specific queries on allotment/refund, Investor may contact Registrar to the Issue. All grievances arising out of Applications for the NCDs made through the Online Stock Exchange Mechanism or through Trading Members may be addressed directly to the respective Stock Exchange. 6. In the event of oversubscription to the Issue, allocation of NCDs will be as per the Basis of Allotment set out in the chapter Issue Procedure on page Our Equity Shares and all our previously issued privately placed NCDs are currently unlisted. 8. Our Company has issued 44,52,156 NCDs, in aggregate, by way of two Public Issues of non-convertible debentures in the Financial Years and , which have been listed on BSE on April 2, 2014 and August 12, 2014, respectively. 9. Our Company has had no contingent liabilities as of March 31, 2013 and March 31, For further information relating to certain significant legal proceedings that we are involved in, please refer to the chapter Outstanding Litigation on page

35 Muthoottu Mini Financiers Limited SECTION III INTRODUCTION GENERAL INFORMATION Our Company was originally incorporated on March 18, 1998 as a private limited company under the provisions of the Companies Act, 1956 as Muthoottu Mini Financiers Private Limited. Our Company was converted into a public limited company with the name Muthoottu Mini Financiers Limited on receipt of a fresh certificate of incorporation consequent to change in status on November 27, 2013 from the ROC. Our Company is Registered as a Non-Banking Financial Company with the Reserve Bank of India under Section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934). Registration Company Registration Number with ROC: Corporate Identity Number issued by the ROC: U65910KL1998PLC Our Company holds a Certificate of Registration dated April 13, 2002 bearing Registration No. N issued by the RBI to carry on the activities of an NBFC under section 45 IA of the Reserve Bank of India Act, This certificate was renewed on January 1, 2014, to reflect the change in the constitution of the Company, to a Public Listed Company. Our Company holds a Certificate of Registration dated July 5, 2012 bearing Registration Number INDP CDSL issued by the SEBI to act as Depository Participant in terms of Regulation 20 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, Registered Office 2/994, Muthoottu Buildings, Kozhencherry, Pathanamthitta Kerala, India. Tel.: , Fax: Website: Corporate Office Muthoottu Mini Tech Towers, Kaloor, Cochin , Kerala, India. Tel.: Fax: Website: Chief Financial Officer Mr. Anoop T. Jacob Muthoottu Mini Tech Towers, Kaloor, Cochin , Kerala, India. cfo@minimuthoottu.com Tel.: Fax: Company Secretary and Compliance Officer: Ms. Priya Menon Muthoottu Mini Tech Towers, Kaloor, Cochin , Kerala, India. cs@minimuthoottu.com Tel.: Fax:

36 Investors may contact the Registrar to the Issue or the Compliance Officer in case of any pre-issue or post Issue related issues such as non-receipt of Allotment Advice, demat credit of allotted NCDs, refund orders or interest on application money. All grievances relating to the Issue may be addressed to the Registrar to the Issue, giving full details such as name, Application Form number, address of the Applicant, number of NCDs applied for, amount paid on application, Depository Participant and the collection centre of the Members of the Syndicate where the Application was submitted. All grievances relating to the ASBA process may be addressed to the Registrar to the Issue with a copy to the relevant SCSB, giving full details such as name, address of Applicant, Application Form number, number of NCDs applied for, amount blocked on Application and the Designated Branch or the collection centre of the SCSB where the Application Form was submitted by the ASBA Applicant. All grievances relating to ASBA process where the application is submitted to a Member of Syndicate should be addressed to the Registrar to the Issue with a copy to the relevant Member of Syndicate and the relevant SCSB. All grievances arising out of Applications for the NCDs made through the Online Stock Exchange Mechanism or through Trading Members may be addressed directly to the Stock Exchange. Registrar of Companies, Kerala and Lakshadweep Company Law Bhavan, BMC Road, Thrikkakara, Kochi , Kerala, India. Tel.: Fax: Board of Directors The following table sets out the details regarding the Board of Directors as on the date. Name, Designation and DIN Roy M. Mathew Designation: Chairman & Managing Director DIN: Nizzy Mathew Designation: Whole-Time Director DIN: Mathew Muthoottu Designation: Whole- Time Director DIN: Thomas Cherian Designation: Non-executive and Independent Director Age Address (years) 65 Muthoottu House, Kozhencherry, Pathanamthitta, , Kerala, India. 61 Muthoottu House, Kozhencherry, Pathanamthitta, , Kerala, India. 24 Muthoottu House, Kozhencherry, Pathanamthitta, , Kerala, India. 63 Angadisseril House, Kollad P.O., Kottayam , Kerala, India. DIN: Philomina Thomas , Polayil, 15, Vazhuthacaud, 32

37 Name, Designation and DIN Designation: Non-executive and Independent Director DIN: Age (years) Muthoottu Mini Financiers Limited Address Thiruvananthapuram , Kerala, India. For further details of Directors of our Company, please refer to chapter titled Our Management beginning on page 91. Lead Manager to the Issue Vivro Financial Services Private Limited 607/608 Marathon Icon, Opp. Peninsula Corporate Park, Off. Ganpatrao Kadam Marg, Veer Santaji Lane, Lower Parel, Mumbai , Maharashtra, India. Tel.: Fax: Investor Grievance Website: Contact Person: Keval Gandhi Compliance Officer: Jayesh Vithlani SEBI Registration No.: INM CIN: U67120GJ1996PTC Debenture Trustee IL&FS Trust Company Limited The IL&FS Financial Center Plot No. C 22, G Block, 3 rd Floor Bandra Kurla Complex, Bandra (East), Mumbai , Maharashtra, India. Tel: Fax: amit.gurbani@ilfsindia.com Website: Contact Person: Amit Gurbani SEBI Registration Number: IND CIN: U66020MH1995PLC IL&FS Trust Company Limited has by its letter dated September 15, 2014 given its consent for its appointment as Debenture Trustee to the Issue and for its name to be included in this Prospectus and in all the subsequent periodical communications to be sent to the holders of the NCDs issued pursuant to this Issue. Registrar to the Issue Link Intime India Private Limited C-13, Pannalal Silk Mills Compound L.B.S. Marg, Bhandup (West) Mumbai , 33

38 Maharashtra, India. Tel: Fax: Investor Grievance mail: Website: Contact Person: Sachin Achar SEBI Registration Number: INR CIN: U67190MH1999PTC Credit Rating Agency India Ratings and Research Private Limited Wockhardt Towers, 4 th Floor, Bandra Kurla Complex, Bandra East Mumbai , Maharashtra, India. Tel: Fax: shrikant.dev@indiaratings.co.in Contact Person: Shrikant Dev Website: www. indiaratings.co.in SEBI Registration No: IN/CRA/002/1999 Legal Counsel to the Issue Khaitan & Co One Indiabulls Centre, 13 th Floor, Tower 1, 841 Senapati Bapat Marg, Elphinstone Road, Mumbai , Maharashtra, India. Tel: Fax: Statutory Auditors of our Company Vijaykumar & Easwaran Chartered Accountants VI th Floor, Amrita Trade Towers, Pallimuku, S.A. Road, Kochi , Kerala, India. Tel: Fax: keaswaran@gmail.com Contact Person: K. Easwaran Pillai Membership No: Firm Registration Number: S Peer Review Certificate:

39 Bankers to the Issue/ Escrow Collection Banks Axis Bank Limited 367/4, Thempadan Hydrose Memorial Building, Opposite St. Francis High School, Ernakulam Kerala, India Tel: Fax: Contact Person: Fabian Joy P, Divya Khosla Website: SEBI Registration No: INBI HDFC Bank Limited FIG OPS Department, Lodha I Think Techno Campus, O-3 Level, Next to Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra, India Tel: Fax: uday.dixit@hdfcbank.com Contact Person: Uday Dixit Website: SEBI Registration No: INBI IndusInd Bank Limited PNA House, 4 th Floor, Plot No 57 & 57/1, Road No. 17, Near SRL, MIDC, Andheri East, Mumbai , Maharashtra, India Tel: Fax: suresh.esaki@indusind.com Contact Person: Suresh Esaki Website: www. indusind.com SEBI Registration No: INBI Refund Bank HDFC Bank Limited FIG - OPS Department, Lodha - I Think Techno Campus, O-3 Level, Next to Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra Tel: Fax: uday.dixit@hdfcbank.com Contact Person: Uday Dixit Website: SEBI Registration No: INBI Bankers to our Company The South Indian Bank Limited Elias Chambers, Banerji Road, Ernakulam , Kerala, India. Federal Bank Limited P B No. 14, College Road, Pathanamthitta , Kerala, India. 35

40 Tel: Fax: Contact Person: Beena Davies Website: State Bank of Travancore Commercial Branch, Malankara Centre, M.G. Road, Ernakulam Kerala, India. Tel: Fax: Contact Person: Hari KR Website: Tel: Fax: Contact Person: T. Muraleedharan Website: Dhanalaxmi Bank Limited Shanmugham Road Branch C/40/664(2), Alex Building, Marine Drive, Ernakulam Kerala, India. Tel: Fax: Contact Person: Hariharan. V Website: The list of Designated Branches that have been notified by SEBI to act as SCSBs for the ASBA process is provided on the website of SEBI at or any other link as prescribed by SEBI from time to time. For details of the Designated Branches of the SCSBs which shall collect ASBA Application Forms, please refer to the above-mentioned link. - If our Company does not receive the minimum subscription of 75 % of the Base Issue, i.e. ` 11,250 lacs, within 30 days from the date of Issue of this Prospectus or such other period as may be specified by SEBI, the entire Application Amounts shall be refunded to the Applicants within 12 days from closure of the Issue. If there is delay in the refund of Application Amounts beyond the time prescribed above, our Company will pay interest for the delayed period at rate of 15% per annum for the delayed period. -` - Consents The written consents of Directors of our Company, Company Secretary and Compliance Officer, Chief Financial Officer, our Statutory Auditor, the legal counsels, thelead Manager, the Registrar to the Issue, Escrow Collection Bank(s), Refund Bank, Credit Rating Agency, the Bankers to our Company, the Debenture Trustee, and the Syndicate Member to act in their respective capacities, will be filed along with a copy of this Prospectus with the RoC as required under Section 26 of the Companies Act and such consents have not been withdrawn up to the time of delivery with Stock Exchange. 36

41 - along with details, if any, till the time any part of the proceeds of this Issue or such previous issue remains unutilized details the Issue proceed shall be kept in the escrow accounts opened in terms of this Prospectus and shall be available to the Company only upon execution of the documents for creation of security as stated in this Prospectus; - * The subscription list for the Issue shall remain open for subscription upto 5pm,with an option for early closure, as may be decided at the discretion of the duly authorised committee of Directors of our Company subject to necessary approvals. In the event of such early closure of the Issue our Company shall ensure that notice of such early closure is given on or before such early date of closure through advertisement/s in a leading national daily newspaper. Applications Forms for the Issue will be accepted only between a.m. and 5.00 p.m. (Indian Standard Time) or such extended time as may be permitted by the Stock Exchange, during the Issue Period as mentioned above on all days between Monday and Friday (both inclusive barring public holiday), (i) by the Lead Manager, Members of the Syndicate or the Trading Members of the Stock Exchange, as the case maybe, at the centers mentioned in Application Form through the non-asba mode or, (ii) in case of ASBA Applications, (a) directly by the Designated Branches of the SCSBs or (b) Lead Manager, Members of the Syndicate or the Trading Members of the Stock Exchange, as the case maybe. On the Issue Closing Date the Application Forms will be accepted only between a.m. and 3.00 p.m. (Indian Standard Time) and uploaded until 5.00 p.m. or such extended time as may be permitted by the Stock Exchange. Due to limitation of time available for uploading the Applications on the Issue Closing Date, Applicants are advised to submit their Application Forms one day prior to the Issue Closing Date and, no later than 3.00 p.m. (Indian Standard Time) on the Issue Closing Date. Applicants are cautioned that in the event a large number of Applications are received on the Issue Closing Date, there may be some Applications which are not uploaded due to lack of sufficient time to upload. Such Applications that cannot be uploaded will not be considered for allocation under the Issue. Application Forms will only be accepted on Working Days during the Issue Period. Neither our Company, nor the Lead Manager, Members of the Syndicate or Trading Members of the Stock Exchange is liable for any failure in uploading the Applications due to failure in any software/ hardware systems or otherwise. Please note that the Basis of Allotment under the Issue will be on a date priority basis. The Issue may close on such earlier date or extended date as may be decided at the discretion of the duly authorised committee of Directors of our Company subject to necessary approvals. In the event of such early closure our Company shall ensure that notice of the same is provided to the prospective investors, on or before such early date of closure through advertisement/s in a leading national daily newspaper. 37

42 SUMMARY OF BUSINESS, STRENGTHS AND STRATEGIES We are a non deposit taking systemically important NBFC in the Gold Loan sector lending money against the pledge of used household gold jewellery (Gold Loans) in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Goa, Haryana, Uttar Pradesh and Maharashtra. We also provide short-term personal loans primarily to individual customers who require immediate availability of funds. Our Gold Loan portfolio as of March 31, 2013 and March 31, 2014 comprised of 3,74,830 and 2,75,895 gold loan accounts respectively, aggregating ` 1,81, lacs and ` 1,76, lacs which is 98.87% and 94.80% of our total loans and advances as on March 31, 2013 and March 31, We, as on August 31, 2014, have a network of 1,053 branches spread in the states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Goa, Haryana, Uttar Pradesh and Maharashtra. We are registered with RBI as a non-deposit taking, systemically important, NBFC (Registration No. N dated April 13, 2002) under section 45 IA of the Reserve Bank of India Act, We are headquartered in the state of Kerala. Our company belongs to the Muthoottu Mini Group. Muthoottu Mini Group is headed by Mr. Roy M. Mathew who belongs to the Muthoottu Family of Kozhencherry, which was founded by Mr. Ninan Mathai Muthoottu, who started the family business enterprise in In 1939 three sons of Mr. Ninan M. Muthoottu, viz, Mr. M. George Muthoot, Mr. M. Mathew and Mr. M. Pappachan Muthoot started a finance company called Muthoot M. George & Brothers (MGB). In the early 1970, they separated their business enterprises into three groups i.e. the current Muthoot Finance group of companies which is controlled by the sons of Mr. George M. Muthoot, the Muthoot Fincorp Group which is controlled by the sons of Mr. M. Pappachan Muthoot and the Muthoottu Mini Group which is controlled by the son Mr. M. Mathew i.e. Mr. Roy M. Muthoottu. Other than the aforementioned family connection, all the groups are distinct from each other and none of them are having any inter-group shareholdings or controls or business dealings. The Muthoottu Mini Group commenced operations at Kozhencherry, district Pathanamthtta, Kerala and has over two decades of established history in the money lending business, mainly in small scale money lending against used household gold jewellery. Our Group has been in the gold loan financing since 1986 and our Company has been extending Gold Loans since Our Gold Loan customers are individuals primarily from rural and semi-urban areas. What distinguishes us from banks is our focus on non-organized sections of society and our turnaround time. In the Financial Year 2014 the average loan amount advanced by us was ` 35,041 per loan transaction and the average tenor per loan for the said period was 101 days. All of our Gold Loans have a term of 12 months. In the financial year ended March 31, 2013, our yield on Gold Loan assets was 19.10%. We focus on rapid, on the spot approval and disbursement of loans with minimal procedural formalities which our customers need to complete in order to avail a loan from us. We have developed various Gold Loan schemes, which offer variable terms in relation to the amount advanced per gram of gold, the interest rate and the amount of the loan, to meet the different needs of various customers. Our lending functions are supported by an in-house, custom developed information technology platform that allows us to, record relevant customer details and approve and disburse the loan. Our web based centralised IT platform which connects all branches also handles internal audit, risk monitoring and management of the relevant loan and pledged gold related information. Our employees undergo periodic training sessions related to evaluation of the worth and authenticity of the gold that is pledged with us. In addition to the loan business, we also offer depository participant services, money transfer services and insurance broking services. During the Financial Years 2014, 2013 and 2012, our total income was ` 35, lacs, ` 34, lacs and ` 18, lacs, respectively. Our profit after tax for the Financial Years 2014, 2013 and 2012 was ` 3, lacs, ` 4, lacs and ` 2, lacs, respectively. In the Financial Years 2014, 2013 and 2012, revenues from our Gold Loan business constituted 97.33%, 98.89% and 98.94%, respectively, of our total income. As of March 31, 2014, 2013 and 2012, our portfolio of Gold Loans under management in principal amount was ` 1,76, lacs, ` 1,81, lacs and ` 1,15, lacs, respectively. Gross non-performing gold loan assets were 0.71%, 0.36% and 0.20% of our gross Gold Loan portfolio under management as of March 31, 2014, 2013 and 2012, respectively. 38

43 A summary of our key operational and financial parameters for the last three completed financial years, as specified below, are as follows: Parameters Financial Year (` in lacs) Networth 42, , , Total Debt 1,85, ,69,061.45, 1,06, of which - Non-Current Maturities of Long Term Borrowing 68, , , Short Term Borrowing 23, , , Current Maturities of Long Term Borrowing 93, ,03, Net Fixed Assets 15, , , Non-Current Assets 18, , , Cash and Cash Equivalents 24, , , Current Investments Current Assets 2,11, ,93, ,20, Current Liabilities 1,17, ,27, , Assets Under Management 1,86, ,83, ,16, Off Balance Sheet Assets Interest Income 35, , , Interest Expense 17, , , Provisioning & Write-offs PAT 3, , , Gross NPA (%) 0.71% 0.36% 0.19% Net NPA (%) 0.57% 0.29% 0.15% Tier I Capital Adequacy Ratio (%) 20.48% 15.75% 14.05% Tier II Capital Adequacy Ratio (%) 0.36% 0.88% 0.24% Gross Debt: Equity Ratio of the Company:- Before the issue of debt securities 3.51 After the issue of debt securities* 4.21 * The debt-equity ratio post the Issue is indicative and is on account of inflow of ` 25,000 lacs raised in the month of August, 2014 and ` 30,000 lacs from the proposed public issue. Our Strengths We feel that the following competitive strengths position us well for continued growth: We are a non deposit taking systemically important NBFC in the Gold Loan sector in South India associated with Muthoottu Mini Group which has a long operating history and large customer base. Our group has been engaged in gold loan financing since We have, over the years, been successful in expanding our brand name, as well as our customer base to different geographical locations in India. Our total number of Gold Loan customers grew from 36,824 as of March 31, 2011 to 76,570 as of August 31, We attribute our growth, in part, to our market penetration, particularly in areas which we believe are less served by organized lending institutions, which is reflected in the fact majority of our branches are located in rural and semi-urban areas as on August 31, 2014 and simple and streamlined procedural formalities which our customers need to complete in order to complete a loan transaction with us, which enables us to attract new and retain existing customers. We also attribute our growth to customer loyalty. We believe that a large portion of our customer base returns to us when they are in need of funds. Flexible loan schemes, efficient customer service and short response time We believe the growth in our Gold Loan portfolio is partly due to the flexible Gold Loan schemes that we offer to our customers and efficient customer service. Depending on the individual needs, we provide our customers multiple options with respect to the loan amount, advance rate per gram of gold and interest rate. We also allow customers to prepay their loans without penalty. 39

44 We provide our customers with a simple and transparent process to avail Gold Loans and other services with trained staff members at all our branch locations. We endeavor to staff our branches with persons belonging to the same locality as our customers which enables us to know our customers and their specific requirements better and enables us to meet up to their expectations in an efficient manner. In addition, we strive to complete our Gold Loan transactions within a short timeframe, which we believe provides us with a competitive edge. Efficient technology support, skilled workforce and clear policies on internal processes enable us to achieve the above objective. Although disbursement time may vary depending on the loan size and the number of items pledged, we can generally disburse a loan within a short span of the time the gold is tendered to the branch staff. Furthermore, since our loans are all collateralized by gold jewellery, there are minimal documentary and credit assessment requirements, which shorten our turnaround time. Extensive branch network across rural and semi-urban areas in South India We have rapidly expanded our branch network in the past across rural and semi-urban areas in South India, which we believe has provided us with an advantage over our competitors. Our total number of branches grew from 224 branches as of March 31, 2011, to 577 branches as of March 31, 2012 and to 959 branches as of March 31, Our branch network has gone up to 1,053 branches as on August 31, As of August 31, 2014 we have our branches in the states of Kerala, Karnataka, Tamil Nadu, Andhra Pradesh, Goa, Delhi, Haryana, Uttar Pradesh and Maharashtra. For further details please refer to Our Business Branch Network on page 82. About 70% of our branches are in rural and semi-urban areas in South India. We believe that the growth in the number of branches has contributed to growth in our revenue from Gold Loan business. Advanced technology systems and established processes We believe that we have implemented a state of the art technology platform across our operations. We have invested in our technology systems and processes to improve overall productivity and ensure good management of customer credit quality and security quality. Our IT infrastructure has been developed and implemented in the Financial Year 2008 and links our network of branches across the country with the corporate office. We have a core banking platform with real time data transmission and updates, and have managed to minimise errors, ensure faster data transmission and risk monitoring. Our management has also benefited from availability of real time information. We upload data at each branch to facilitate online information access for faster decision making. In addition, our technology platform has helped us develop an effective system based risk assessment and internal control system and internal audit. We also have a disaster recovery system located outside of Kerala which replicates data on a real time basis. Our centralized technology aids us in offsite surveillance of all our branches. Our technology also helps reduce the time it takes to complete Gold Loan transactions. Our Company has put in place well defined and efficient process that enables us to achieve uniformity in our operations across all our branches. Our processes are developed at the corporate office level by professionals who have extensive experience in the areas of banking and financial services with supervision from our management. Well defined processes and an efficient technology platform, enables us to keep a better check over our entire branch network and helps us in detecting shortcomings. We believe that our advanced technology systems and established processes enable us to respond to market opportunities and challenges swiftly, improve the quality of service to our customers and improve our risk management capabilities. Robust support system, including appraisal, internal audit and inventory control and safety systems Our ability to appraise the quality of the gold jewellery to be pledged in a short period of time is critical to our business. Assessing the gold jewellery quickly and accurately is a specialized skill that involves an assessment for gold content and quality manually without damaging the jewellery. We undertake the assessment activity inhouse using tested methods of appraisal of gold. Once the Gold Loan is made, we have a system in place for continuous monitoring of the pledged gold by internal audit and risk management teams. In accordance with our internal audit policy, all of our branches are subject to inspection between 120 days and 150 days depending upon management perception of the risk associated with the branch. High value gold loans of ticket size of ` 1 lac and above are verified by Regional Managers during their branch visits and vigilance audits can be conducted at any branch at any time between two audits. At the time of conducting an inspection, a quality check on the inventory is also carried out, which 40

45 involves physical security checks and checks on the quality of pledged gold. All our branches are fitted with strong rooms which are reinforced concrete cement structures built per industry standards and practices to ensure high level of security. Experienced management team and skilled personnel Our Promoter, Mr. Roy M. Mathew is a third generation entrepreneur and has over three decades of experience in Gold Loan business. Our senior and operating level management teams have extensive experience in the areas of banking and financial services and we believe that their considerable knowledge of and experience in the industry enhances our ability to operate effectively. Our staff, including professionals, covers a variety of disciplines, including gold appraisal, internal audit, technology, accounting, marketing and sales. Our management has experience in identifying market trends and suitable locations for expanding and setting up branches to suit our target customers. Our workforce also consists of appraisers who are skilled in the evaluation of the worth and authenticity of the gold that is pledged with us and we conduct periodic training programs to augment their knowledge and efficiency in performing this task Strategy Our business strategy is designed to capitalize on our competitive strengths and enhance our leadership position in the Gold Loan industry. Key elements of our strategy include: Further growth in gold loan business in rural and semi-urban markets to tap into the potentially large market for gold loans Indian gold loan market expanded considerably in recent years. The recent developments in the gold loan market have both positive and negative implications. In a country, where loans are required to be raised for meeting some sudden medical exigency or an educational loan or a business loan by a small and medium enterprise owner, the gold loans extended by the NBFCs are very handy and flexible, though costlier than such loans disbursed by banks. At a time, when financial inclusion is a major policy goal, the services rendered by the gold loans NBFCs, which are a part of the organised loan market are contributing in a reasonable measure to cater to the borrowing requirements of a needy section of the society. Secondly, gold is an idle asset in the hands of individuals and there is a huge unlocked economic value in the Indian economy, which is said to have anywhere between 18,000 to 20,000 tonnes of gold. Just a small fraction of about three per cent of this idle gold stock is being used for raising gold loans, at present (Source: RBI Report of the Working Group to study the issues related to gold imports and gold loan NBFCs in India Feb 2013). We intend to increase our presence in under-served rural and semi-urban markets, where a large portion of the population has limited access to credit either because they do not meet the eligibility requirements of banks or financial institutions, or because credit is not available in a timely manner at reasonable rates of interest, or at all. A typical Gold Loan customer expects high loan-to-value ratios, rapid and accurate appraisals, easy access, low levels of documentation, quick approval and disbursement and safekeeping of their pledged gold. We believe we meet these criteria, and thus our focus is to expand our Gold Loan business. Diversifying our business into metros and select Tier 1 cities across India In addition to our continuing focus on rural and semi-urban markets in the states that we are present, we intend to open branches in metros and select Tier 1 cities where we believe our business has high growth potential. Subject to necessary approvals we intend to open new branches in the states of Andhra Pradesh, Delhi, Goa, Haryana, Karnataka, Uttar Pradesh and Union territory of Pondicherry during the current Financial Year in addition to Kerala and Tamil Nadu. We carefully assess the market, location and proximity to target customers when selecting branch sites to ensure that our branches are set up close to our target customers. We believe our customers appreciate this convenience and it enables us to reach new customers. Expanding the visibility of the Muthoottu Mini Brand to attract new customers Our brand is key to the growth of our business. We started focusing on brand building exercise in Our logo was re-designed and the tag- was introduced. We believe that we have built a recognizable brand in the rural and semi-urban markets of India, particularly in the southern states of Kerala, Tamil Nadu, Karnataka and Andhra Pradesh. We intend to continue to build our brand through advertising and public relations campaigns and undertaking other marketing efforts on radio, television and outdoor advertising. 41

46 Undertaking new business initiatives to diversify our revenue stream by leveraging our branch network and customer base. Gold Loan and Personal Loan as on August 31, 2014 account for 93.8% and 6.2% of total loans of our Company, respectively. With a view to expand our fee based income we are in the process of finalizing corporate agency agreements with life, health and general insurance companies for marketing their life insurance plans, health insurance products and other non-life products. We have also entered into Memorandum of Understanding dated April 12, 2013 with Doha Broking & Finance Co. Limited for carrying out online trading in equity derivative and commodity segments using our Depository Participant platform. Our Company is also contemplating offering Mutual Fund products and Insurance repository service. Our Company intends to capitalise on the large branch network to offer these additional products and services. Strengthening our risk management, loan appraisal and technology systems to have an error less streamlined growth in business Risk management is viewed by us as a crucial element for the expansion of our Gold Loan business. We therefore continually focus on improving our integrated risk management framework with processes for identifying, measuring, monitoring, reporting and mitigating key risks, including credit risk, appraisal risk, custodial risk, market risk and operational risk. We propose to make significant investments in personnel, technology and infrastructure in order to improve process efficiencies and mitigate business risks. We have recruited individuals who have significant risk management experience and plan to retain this focus in hiring additional risk management personnel. Going forward, we plan to continue to adapt our risk management procedures to take account of trends we have identified, including our loan loss experience. We believe that prudent risk management policies and development of tailored credit procedures will allow us to expand our Gold Loan financing business without experiencing significant increases in non-performing assets. Since we plan to expand our geographic reach as well as our scale of operations, we intend to further develop and strengthen our technology platform to support our growth and improve the quality of our services. We are focused on improving our comprehensive knowledge base and customer profile and support systems, which in turn will assist us in the expansion of our business. 42

47 THE ISSUE The following is a summary of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information in the chapter titled Terms of the Issue beginning on page 144 of this Prospectus. Issuer Muthoottu Mini Financiers Limited Lead Manager Vivro Financial Services Private Limited Debenture Trustee IL&FS Trust Company Limited Registrar to the Issue Link Intime India Private Limited Type and nature of Secured NCDs and Unsecured NCDs. Instrument Face Value of NCDs ` 1,000 (` / NCD) Issue Price (` / NCD) ` 1,000 Minimum Application 10 NCDs i.e., ` 10,000 ( across all Options of NCDs) In Multiples of One NCD after the Minimum Application Seniority Senior (the claims of the Debenture Holders holding Secured NCDs shall be superior to the claims of any unsecured creditors, including the Unsecured NCDs, subject to applicable statutory and/or regulatory requirements). The Secured NCDs would constitute secured obligations of our Company and shall rank pari passu inter se, present and future and subject to any obligations under applicable statutory and/or regulatory requirements, shall also, with regard to the amount invested, be secured by way of first pari passu charge on immovable property located at Chennai, Tamil Nadu and first pari passu charge on current assets, book debts, loans and advances, and receivables, both present and future, of our Company, except those receivables specifically and exclusively charged in favour of the Existing Lenders and to be more particularly described in the Secured Debenture Trust Deed. Mode of Issue Minimum Subscription Issue Stock Exchange proposed for listing of the NCDs Listing and timeline for Listing Depositories Security Claims of all other lenders shall rank higher than Unsecured NCDs in the nature of Subordinated Debt. Public Issue Minimum subscription is 75 % of the Base Issue, i.e. ` Public Issue by our Company of Secured NCDs and Unsecured NCDs aggregating up to ` 15,000 lacs with an option to retain over-subscription up to ` 15,000 lacs aggregating up to ` 30,000 lacs, on the terms and in the manner set forth herein; Base Issue Size being ` 15,000 lacs. The Unsecured NCDs will be in the nature of Subordinated Debt and will be eligible for Tier II capital. Company shall ensure that Secured NCDs shall be allotted for a value upto ` 20,000 lacs and Unsecured NCDs shall be allotted for a value upto ` 15,000 lacs, subject to the total issue size not exceeding ` 30,000 lacs. BSE Limited (BSE),The Designated Stock Exchange (DSE) The NCDs shall be listed within 12 Working Days of Issue Closure NSDL and CDSL The principal amount of the Secured NCDs to be issued in terms of this Prospectus together with all interest due on the NCDs, as well as all costs, charges, all fees, remuneration of Debenture Trustee and expenses payable in respect thereof shall be secured by way of first paripassu charge on immovable property located in Chennai, Tamil Nadu and first charge on current assets, including book debts, loans and advances, cash and bank balance and receivables, both present and future, of our Company ranking pari passu with the existing debenture holders holding Secured NCDs of our Company, more particularly described in the Secured Debenture Trust Deed, except those receivables specifically and exclusively charged in favour of the Existing Lenders. 43

48 Security Cover Rating Issue Size No security will be created for Unsecured NCD in the nature of Subordinated Debt Our Company shall maintain a minimum 100 percent security cover on the outstanding balance of Secured NCDs plus accrued interest thereon. No security will be created for Unsecured NCDs in the nature of Subordinated Debt Rating Instrument Rating Date of Amount Rating Agency Symbol credit rating rated Definition Letter India Ratings & Research Pvt. Ltd. (A FITCH Company) Long Term Bond Issue, a combinatio n of Secured and Unsecured Non Convertible Debentures IND-RA BB+] September 11, 2014 ` 30,000 lacs The rating of Secured and Unsecured NCDs by IND-RA indicates instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations Public Issue by our Company of Secured NCDs and Unsecured NCDs aggregating up to ` 15,000 lacs with an option to retain over-subscription up to ` 15,000 lacs aggregating up to ` 30,000 lacs, on the terms and in the manner set forth herein. Pay-in date Application money Record Date Company shall ensure that Secured NCDs shall be allotted for a value upto ` 20,000 lacs and Unsecured NCDs shall be allotted for a value upto ` 15,000 lacs subject to the total issue size not exceeding ` 30,000 lacs. Three (3) Business Days from the date of upload of application in the book building system of the Exchanges or the date of realisation of the cheques/demand drafts, whichever is later. Interest on Application Money shall start on the Pay-in date and shall be payable upto one day prior to the date of Allotment. The entire Application Amount is payable on submitting the application. The record date for payment of interest in connection with the NCDs or repayment of principal in connection therewith shall be 7 days prior to the date on which interest is due and payable, and/or the date of redemption. Provided that trading in the NCDs shall remain suspended between the aforementioned Record Date in connection with redemption of NCDs and the date of redemption or as prescribed by the Stock Exchanges, as the case may be. In case Record Date falls on a day when stock exchanges are having a trading holiday, the immediate subsequent trading day will be deemed as the Record Date. Issue Schedule* The Issue shall be open from Monday, September 29, 2014 to Tuesday, October 28, 2014 with an option to close earlier as may be determined by a duly authorised committee of the Board and informed by way of newspaper publication on or prior to the earlier closer date/ date of closure upto maximum 30 days from the date of opening of the Issue. Objects of the Issue Please refer to the chapter titled Objects of the Issue on page 59. Put/Call Option Details of the utilisation of the proceeds of the Issue Coupon rate and redemption premium Working Days convention/day count convention / Effect of holidays on payment None Please refer to the chapter titled Objects of the Issue on page 59. Please refer to the chapter titled Issue Structure Terms and Conditions in connection with the NCDs on page 129. Actual/Actual - All days excluding, Sundays and a public holiday in Cochin or at any other payment centre notified in terms of the Negotiable Instruments Act, 1881, except with reference to Issue Period where working days shall mean all days, excluding Saturdays, Sundays and public holidays in India or at any other payment centre notified in terms of the Negotiable Instruments Act, Interest shall be computed on a 365 days a year basis on the principal outstanding on the NCDs for Options II, IV, VI and VII which have tenors either on yearly basis or cumulative basis. For Options I, III and V, the interest shall be calculated from the first day till the last date 44

49 Issue Opening Date Monday, September 29, 2014 Issue Closing Date Default interest date Interest on Application Money Deemed Date of Allotment Transaction documents Muthoottu Mini Financiers Limited of every month on an actual/ actual basis during the tenor of such NCDs. However, if period from the Deemed Date Of Allotment / anniversary date of Allotment till one day prior to the next anniversary / redemption date includes February 29, interest shall be computed on 366 days a-year basis, on the principal outstanding on the NCDs. If the date of payment of coupon does not fall on a Working Day, then the succeeding Working Day will be considered as the effective date for such payment of interest (the Effective Date). Coupon will be paid on the Effective Date. For avoidance of doubt, in case of interest payment on Effective Date, interest for period between actual interest payment date and the Effective Date will be adjusted in normal course in next interest payment date cycle. Payment of interest will be subject to the deduction of tax as per Income Tax Act or any statutory modification or re-enactment thereof for the time being in force. In case the Maturity Date falls on a holiday, the payment will be made on the succeeding Working Day, with interest being adjusted accordingly. Tuesday, October 28, 2014 with an option to close earlier as may be determined by a duly authorised committee of the Board and informed by way of newspaper publication on or prior to the earlier closer date/ date of closure upto maximum 30 days. In the event of any default in fulfillment of obligations by our Company under the Secured Debenture Trust Deed and the Unsecured Debenture Trust Deed, the Default Interest Rate payable to the Applicant shall be as prescribed under the Secured Debenture Trust Deed and the Unsecured Debenture Trust Deed, respectively. Please refer to the chapter titled Issue Structure- Interest on Application Money on page 142 The date on which the Board or a duly authorized committee approves the Allotment of NCDs. All benefits relating to the NCDs including interest on NCDs shall be available to Investors from the Deemed Date of Allotment. The actual allotment of NCDs may take place on a date other than the Deemed Date of Allotment. This Prospectus read with any notices, corrigenda, addenda thereto, the Debenture Trusteeship Agreement, the Secured Debenture Trust Deed, Unsecured Debenture Trust Deed and other security documents, if applicable, and various other documents / agreements / undertakings, entered or to be entered by the Company with Lead Manager and/or other intermediaries for the purpose of this Issue including but not limited to the Secured Debenture Trust Deed, Unsecured Debenture Trust Deed, the Debenture Trusteeship Agreement, the Escrow Agreement, the MoU with the Registrar and the MoU with the Lead Manager. Refer to section titled Material Contracts and Documents for Inspection on page 225. Affirmative and Negative The covenants precedent and subsequent to the Issue will be finalised upon execution of covenants precedent and the Secured Debenture Trust Deed and Unsecured Debenture Trust Deed which shall be subsequent to the Issue executed within three months of closure of the Issue as per Regulation 15 of SEBI Debt Regulations. Events of default Please refer to the chapter titled Issue Structure - Events of Default on page 142. Cross Default Issue Structure - Events of Default142. Roles and responsibilities of the Debenture Trustee Please refer to the chapter titled Issue Structure - Debenture Trustees for the Debenture Holders on page 142. Settlement Mode Please refer to the chapter titled Issue Structure- Payment on Redemption on page 139 Governing law and jurisdiction The Issue shall be governed in accordance with the laws of the Republic of India and shall be subject to the exclusive jurisdiction of the courts of Cochin. The specific terms of each instrument are set out below: Tenure 18 months 36 months 42 months 66 months Options I II III IV V VI VII Frequency of Interest Payment Monthly Cumulative Monthly Cumulative Monthly Annual Cumulative Minimum Application 10 NCDs (` 10,000) (across all options of NCDs) In Multiples of 1 NCD after the minimum application Face Value of NCDs (` / NCD) ` 1,000 Issue Price (` / NCD) ` 1,000 Mode of Interest Through Various options available Payment/Redemption 45

50 Tenure 18 months 36 months 42 months 66 months Options I II III IV V VI VII Coupon (%) per annum in 11.50% NA 11.75% NA 12.00% 12.75% NA Category I, II & III Coupon (%) for Existing 11.75% NA 12.00% NA 12.25% 13.00% NA Debenture Holders, Exservicemen and Senior Citizen Coupon Type Fixed Redemption Amount (` 1,000 1,171 1,000 1,500 1,000 1,000 2,000 /NCD) for Debenture Holders in Category I, II & III Redemption Amount (` 1,000 1,175 1,000 1,500 1,000 1,000 2,000 /NCD) for Existing Debenture Holders, Ex-servicemen and Senior Citizen Effective Yield 12.13% 11.75% 12.40% 12.28% 12.68% 12.75% 13.43% (per annum) Effective Yield (per annum) for Existing Debenture Holders, Exservicemen and Senior Citizen 12.40% 12.00% 12.68% 12.28% 12.96% 13.00% 13.43% Nature of Indebtedness Secured and Non-Convertible Unsecured, Subordinate and Non- Convertible Put and Call Option Not Applicable Deemed Date of Allotment The date on which the Board or a duly authorized committee approves the Allotment of NCDs. All benefits relating to the NCDs including interest on the NCDs shall be available to the investors from the Deemed Date of Allotment. The actual Allotment of NCDs may take place on a date other than the Deemed Date of Allotment. For details of category wise eligibility and allotment in the Issue please refer to Issue Procedure How to apply Who can apply and Issue Procedure Basis of allotment, on pages 130 and 172, respectively. 46

51 CAPITAL STRUCTURE Details of share capital The equity share capital of our Company as at date of this Prospectus is set forth below: Share Capital In ` Authorised Share Capital 2,25,00,000 Equity Shares of ` 100 each 2,25,00,00,000 Issued, Subscribed and Paid-up share capital 2,25,00,000 Equity Shares of ` 100 each 2,25,00,00,000 Issue size Public Issue by our Company of Secured NCDs and Un-secured NCDs, aggregating up to ` 15,000 Lacs to the public, (Base Issue), with an option to retain oversubscription of up to ` 15,000 Lacs, aggregating up to ` 30,000 Lacs, in the terms and in the manner set forth herein. Changes in the authorised capital of Our Company as on the date of this Prospectus: Date of Approval March 18,1998 (Date of Incorporation) November 12, 1999 (AGM) September 30, 2010 (AGM) November 30, 2010 (EGM) September 29, 2012 (EGM) November 25, 2013 (EGM) Authorised Particulars Share Capital (in ` ) 75,00,000 Authorised Share Capital of our Company on incorporation as mentioned in Clause V of the Memorandum of Association was ` 75,00,000 divided into 75,000 equity shares of ` 100 each. 2,00,00,000 Authorised Share Capital was increased from ` 75,00,000 divided into 75,000 equity shares of ` 100 each to ` 2,00,00,000 divided into 2,00,000 Equity Shares of ` 100 each. 60,00,00,000 Authorised Share Capital was increased from ` 2,00,00,000 divided into 2,00,000 Equity Shares of ` 100 each to ` 60,00,00,000 divided into 60,00,000 Equity Shares of ` 100 each. 1,20,00,00,000 Authorised Share Capital was increased from ` 60,00,00,000 divided into 60,00,000 Equity Shares of ` 100 each to ` 1,20,00,00,000 divided into 1,20,00,000 Equity Shares of ` 100 each. 1,75,00,00,000 Authorised Share Capital was increased from ` 1,20,00,00,000 divided into 1,20,00,000 Equity Shares of ` 100 each to ` 1,75,00,00,000 divided into 1,75,00,000 Equity Shares of ` 100 each. 2,25,00,00,000 Authorised Share Capital was increased from ` 1,75,00,00,000 divided into 1,75,00,000 Equity Shares of ` 100 each to ` 2,25,00,00,000 divided into 2,25,00,000 Equity Shares of ` 100 each. Equity Share Capital History of our Company: Date of Allotment March 18, 1998 December 28,1999 October 1, 2010 November 30, 2010 No. of Equity Shares Face Value (in ` ) Issue Price (in ` ) Considerati on (Cash, other than cash etc.) Nature of Allotment Cumulative No. of Equity Shares Cumulative Equity Share Capital (in ` ) Cumulative Equity Share Premium (in ` ) 4, Cash Subscribers to 4,000 4,00,000 NIL MOA 1 1,96, Cash Preferential 2,00,000 2,00,00,000 NIL Allotment 2 58,00, Cash Preferential 60,00,000 60,00,00,000 NIL Allotment to Roy M. Mathew 60,00, Cash Preferential 1,20,00,000 1,20,00,00,000 NIL Allotment to Roy. M. Mathew 47

52 Date of Allotment December 28, 2012 March 28, 2013 March 28, 2013 November 26, 2013 November 30, 2013 December 10, 2013 No. of Equity Shares Face Value (in ` ) Issue Price (in ` ) Considerati on (Cash, other than cash etc.) Nature of Allotment 10,00, Cash Preferential Allotment to Mini Muthoottu Credit India Private Limited Cumulative No. of Equity Shares Cumulative Equity Share Capital (in ` ) Cumulative Equity Share Premium (in ` ) 1,30,00,000 1,30,00,00,000 10,00,00,000 1,57,50,000 1,57,50,00,000 37,50,00,000 27,50, Cash Preferential Allotment 3 17,50, Not 1,75,00,000 1,75,00,00,000 37,50,00,000 Applicable 25,00, Not Applicable Bonus issue at the ratio of 1 Equity Shares for every 9 Equity Shares held by existing shareholders as on March 28, 2013 Bonus issue at the ratio of 1 Equity Shares for every 7 Equity Shares held by existing shareholders as on November 25, ,00,00,000 2,00,00,00,000 37,50,00,000 2,15,00,000 2,15,00,00,000 52,50,00,000 15,00, Cash Preferential Allotment 4 10,00, Cash Preferential 2,25,00,000 2,25,00,00,000 62,50,00,000 Allotment to Roy. M. Mathew Total 2,25,00,000 2,25,00,00,000 62,50,00,000 1 Allotment of 1,000 Equity Shares each to Mr. Roy. M. Mathew, Ms. Nizzy Mathew, Mr. Mathew Muthoottu and Ms. Sosamma Mathew 2 Allotment of 1,38,000 Equity Shares to Mr. Roy M. Mathew and 29,000 Equity Shares each to Ms. Nizzy Mathew and Ms. Sosamma Mathew 3 Allotment of 3,50,000 Equity Shares to Mr. Roy M. Mathew, 5,00,000 Equity Shares to RMM Properties India Private Limited and 19,00,000 Equity Shares to Muthoottu Mini Hotels Private Limited 4 Allotment of 13,50,000 Equity Shares to Mr. Mathew Muthoottu and 1,50,000 Equity Shares to Mini Muthoottu Credit India Private Limited Shareholding pattern of our Company as on the date of this Prospectus: Sr. No. Name of the Shareholder Total number of Equity Shares Number of shares held in dematerialized form Total shareholding as a % of total number of Equity Shares Shares pledged or otherwise encumbered 1. Roy M. Mathew 1,66,06,352 Nil Nil 2. Muthoottu Mini Hotels Private Limited 24,12,698 Nil Nil 3. Mini Muthoottu Credit India Private 14,19,841 Nil 6.31 Nil Limited 4. Mathew Muthoottu 13,88,094 Nil 6.17 Nil 5. RMM Properties India Private Limited 6,29,207 Nil 2.80 Nil 6. Nizzy Mathew 38,094 Nil 0.17 Nil 7. Muthoottu Mini Theatres Private Limited 5,714 Nil 0.02 Nil Total 2,25,00,

53 Promoter Built-up Mr. Roy M. Mathew Date of Allotment No. of Equity Shares Face Value (in ` ) Issue Price (in ` ) Consideration (Cash, other than cash etc.) Nature of Allotment Sources March 18, , Cash Subscription to MOA Own funds December 28, ,38, Cash Preferential Allotment Own funds October 1, ,00, Cash Preferential Allotment Own funds November 30, ,00, Cash Preferential Allotment Own funds March 28, ,50, Cash Preferential Allotment Own funds March 28, ,65, Not Applicable Bonus issue at the ratio of 1 Equity Shares for every 9 Equity Shares held by existing shareholders as on March 28, 2013 November 26, ,50, Not Applicable Bonus issue at the ratio of 1 Equity Shares for every 7 Equity Shares held by existing shareholders as on November 25, 2013 Own funds Own funds December 10, ,00, Cash Preferential Allotment Own funds Total 1,66,06,352 Mrs. Nizzy Mathew Date of Allotment No. of Equity Shares Face Value (in ` ) Issue Price (in ` ) Consideration (Cash, other than cash etc.) Nature of Allotment Sources March 18, , Cash Subscription to MOA Own funds December 28, , Cash Preferential Allotment Own funds March 28, , Not Applicable Bonus issue at the ratio of 1 Equity Own funds Shares for every 9 Equity Shares held by existing shareholders as on March 28, 2013 November 26, , Not Applicable Bonus issue at the ratio of 1 Equity Shares for every 7 Equity Shares held by existing shareholders as on November 25, 2013 Total 38,094 Mr. Mathew Muthoottu Date of Allotment No. of Equity Shares Face Value (in ` ) Issue Price (in ` ) Consideration (Cash, other than cash etc.) Nature of Allotment Own funds Sources March 18, , Cash Subscription to MOA Own funds December 28, , Cash Preferential Allotment Own funds March 28, , Not Applicable Bonus issue at the ratio of 1 Equity Own funds Shares for every 9 Equity Shares held by existing shareholders as on March 28, 2013 November 26, , Not Applicable Bonus issue at the ratio of 1 Equity Shares for every 7 Equity Shares held by existing shareholders as on November 25, 2013 Own funds November 30, ,50, Cash Preferential Allotment Own funds Total 13,88,094 49

54 List of top ten holders of Equity Shares of our Company as on the date of this Prospectus is: Sr. No. Name of Shareholders Address Number of Equity Shares held As a % of total No. of Equity Shares 1. Mr. Roy M. Mathew Muthoottu House, Kozhencherry, 1,66,06, Pathanamthitta , Kerala, India 2. Ms. Nizzy Mathew Muthoottu House, Kozhencherry, 38, Pathanamthitta , Kerala, India 3. Mr. Mathew Muthoottu Muthoottu House, Kozhencherry, 13,88, Pathanamthitta , Kerala, India 4. Mini Muthoottu Credit Door No 10/95262, Kozhencherry P O, 14,19, India Private Limited Pathanamthitta , Kerala, India 5. RMM Properties India Muthoottu Building, Kozhencherry, 6,29, Private Limited Pathanamthitta , Kerala, India 6. Muthoottu Mini Hotels Muthoottu House, Kozhencherry, 24,12, Private Limited Pathanamthitta , Kerala, India 7. Muthoottu Mini Theatres Beta Flat No -15, Amritavarshini 5, Private Limited Apartments, 2 nd Floor, Mogappair East, Chennai , Tamil Nadu, India Total 2,25,00, List of top ten holders of listed Secured Non-Convertible Debentures of face value ` 1,000 as on the date of this Prospectus is: Sr. No. Name of holders Address Amount (in ` in lacs) 1. Ashokan K Mahima Samarthynagar Vydyasala Junction, Asramam, Kollam, 2. Arasu B T Anandam Ramaraserry Lane, Near NSS Karayogam Vattappara, Thiruvananthapuram, Kerala 3. Nazeer P H 1-B Presidency Homes P F Road, Kaloor, Kerala 4. Nitin Sadanand Kulkarni Kaustubh, 94 Sahakar Nagar, Dnyaneshwar H Society, Pune, Maharashtra 5. K C Philipose Blue Heaven, Musavarikunnu Punalur, Kerala 6. Thankamma Philipose Blue Heaven, Musavarikunnu Punalur, Kerala 7. Susan Mammen Parekkulam House, Vadavathoor PO Kottayam, Kerala 8. Purushothaman B. Aiswarya Villa, Cheruvalloor Cheriyanad Kollakadavu, Cheriyanad, Kerala 9. Jino P Mathew Poykamannil Karamveli Nellikala PO, Pathanamthitta, Kerala 10. V R Iyengar 96 Laxmi Nilaya Anjaneyanagar 3 rd Main 3 rd Phase Bhanasankari, 3 rd Stage, Banglore, Karnataka List of top ten holders of Secured Non-Convertible Debentures as on the date of this Prospectus is: Sr. No. Name of holders Address Amount (in ` in lacs) 1. Roy M Mathew Muthoottu House, Kozhencherry, Pathanamthitta , Kerala, India 2. Vamanan.V.S Velupparambu Madham, Maradu P.O, 3. Perviz Farrok Kaka & Porus Kaka Ernakulam Avabai Mansion, 15, Henry Road, Tajmahal, Colaba, Mumbai,

55 Sr. No. Muthoottu Mini Financiers Limited Name of holders Address Amount (in ` in lacs) 4. Perviz Farrok Kaka & Noshirwan Kaka 5. Lakshmi Gayathri &Venkata Narayanan Avabai Mansion, 15, Henry Road, Tajmahal, Colaba, Mumbai, Balaeswari, HS. No. 64, Subash Nagar, Airport Road, Perunnthanni, Vallakadavu PO, Thiruvananthapuram Mathai Augusty Parackal House PBK Mina Road Thrikkakara P.O Vazhakkala J Chandra SMV Illam,TC 35/159, NO 45, Padma Nagar, Thiruvananthapuram, DR. Mariamma Ipe No.3362, 13 th main, Hal II nd Stage, Bangalore Bai Sreedharan & S Santhini Gurupreethy 30 Vyttila Cochin Eranakulam, Mathew.C.I and Simon Mathew 43/348, Paul Abro Road, Ernakulam List of top ten holders of listed Unsecured Non-Convertible Debentures of face value ` 1,000 as on the date of this Prospectus is: Sr. No. Name of holders Address Amount (in ` in lacs) 1. Silvy Simon Valiaputhenpurackal, Kaipuzha P O, Kottayam, Kerala 2. Merciamma Augusty P Kizhakethalamanickal, Palampra P O Kanjirapally, Kottayam, Kerala 3. Ajikumar B Kattakkal Veedu, Nedumangad, Pazhakutty, Nedumangad, Kerala 4. Monetary Kuries Private 3rd Floor,Bell Mouth Bldg Limited Round South, Thrissur, Kerala 5. Gopinathan Pillai R Malayude Thekkethil, Poozhikkadu, Kudassanadu P O, Pandalam, Kerala 6. Thomas Philip Parayidayil House, Nellickala P O Elanthoor, Pathanamthitta, Kerala 7. Annamma Thomas Jessy Bhavanam, Manakala P O, Erathu Choorakode, Pathanamthitta, Kerala 8. John K Abraham Kaleeckaltharayil, kizhakkekara Thevalakara Po, Kollam, Kerala 9. Mathews Chandy & Sharon 23 Queen Park, Edappally Po Keerthi Nagar Susan Mathews Ernakulam, Kerala 10. Jacob Mathew Kunnayathuparampil Pullikanakku PO Kayakulam, Alaphuzha,Kerala Details of Promoter holding in our Company as on the date of this Prospectus Sr. No. Name of the Promoter Total number of Equity Shares Total shareholding as a % of total number of Issued and Subscribed Equity Shares 1. Roy M. Mathew 1,66,06, Nizzy Mathew 38, Mathew Muthoottu 13,88, Total 1,80,32,

56 Debt - equity ratio The debt-equity ratio of our Company, prior to this Issue is based on a total outstanding debt of ` 1,50,658 lacs and shareholder funds amounting to ` 42,942 lacs as on August 31, (` in Lacs) Particulars Pre- Issue Post- Issue Long Term Debts 93, ,23, Short Term Debts (incl. Current maturities of long term debt) 56, , Total Debts 1,50, ,80, Shareholders' Funds Equity Share Capital 22, ,500 Reserves & Surplus 20, , Total Shareholders' Funds 42, , Long Term Debts/ Equity Debt / Equity # # The debt-equity ratio post the Issue is indicative and is on account of inflow of ` 25,000 lacs raised in the month of August, 2014 and ` 30,000 lacs from the proposed public issue and does not include contingent and off-balance sheet liabilities. The actual debt-equity ratio post the Issue would depend upon the actual position of debt and equity on the date of allotment. For details on the total outstanding debt of our Company, please refer to the chapter titled Financial Indebtedness beginning on page 124. Our Company has not made any acquisition or amalgamation in the last one year. Our Company has not made any reorganization/ reconstruction in the last one year. Our Company does not have any outstanding borrowings taken/ debt securities issued where taken / issued (i) for consideration other than cash, whether in whole or part, (ii) at a premium or discount, or (iii) in pursuance of an option. Employee Stock Option Scheme Our Company does not have any employee stock option scheme. 52

57 STATEMENT OF TAX BENEFITS The following tax benefits will be available to the debenture holders as per the existing provisions of law. The tax benefits are given as per the prevailing tax laws and may vary from time to time in accordance with amendments tothe law or enactments thereto. The debenture holder is advised to consider the tax implications in respect ofsubscription to the debentures after consulting his tax advisor as alternate views are possible. We are not liable tothe debenture holder in any manner for placing reliance upon the contents of this statement of tax benefits. A. IMPLICATIONS UNDER THE INCOME- i) To the Resident Debenture Holder 1. Interest on NCD received by debenture holders would be subject to tax at the normal rates of tax inaccordance with and subject to the provisions of the I.T. Act and such tax would need to be withheld at thetime of credit/payment as per the provisions of Section 193 of the I.T. Act. However, no income tax is deductible at source in respect of the following: (a) In case the payment of interest on debentures to a resident individual or a Hindu undivided family HUFlder does not or is not likely to exceed `5, in the aggregate during the Financial Year and the interest is paid by an account payee cheque. (b) On any security issued by a company in a dematerialized form and is listed on recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 and the rules made there under.(with effect from June 1, 2008). (c) When the Assessing Officer issues a certificate on an application by a Debenture Holder on satisfaction that the total income of the Debenture Holder justifies no/lower deduction of tax at source as per the provisions of Section 197(1) of the I.T. Act; and that certificate is filed with the Company before the prescribed date of closure of books for payment of debenture interest. (d) PAN company or a firm) submits a declaration as per the provisions of Section 197A(1A) of the I.T. Act in the prescribed form 15G verified in the prescribed manner to the effect that the tax on his estimated total income of the financial year in which such income is to be included in computing his total income considered for exemption from tax deduction at source if the dividend income referred to in Section 194 of the I.T. Act, interest on securities, interest, withdrawal from NSS and income from units of mutual fund or of Unit Trust of India as the case may be or the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid during the previous year in which such income To illustrate, as on April 1, 2014, the maximum amount of income not chargeable to tax in case of individuals (other than senior citizens and super senior citizens) and HUFs is ` 250,000.00; in the case of every individual being a resident in India, who is of the age of 60 years or more but less than 80 years at any time during the Financial Year (Senior Citizen) is ` 300,000.00; and in the case of every individual being a resident in India, who is of the age of 80 years or more at any time during the Financial Year (Super Senior Citizen) is ` 5,00, for Financial Year Further, section 87A of the I.T. Act provides a rebate of 100% of income-tax or an amount of ` 2, whichever is less to a resident individual whose total income does not exceed ` 500, (ii) Senior citizens, who are 60 or more years of age at any time during the financial year, enjoy the special privilege to submit a self-declaration in the prescribed Form 15H for non deduction of tax at source in accordance with the provisions of Section 197A (1C) of the I.T. Act even if the aggregate income credited or paid or likely to be credited or paid exceeds the maximum amount not chargeable to tax, provided that the tax due on total income of the person is NIL. 53

58 (iii) In all other situations, tax would be deducted at source as per prevailing provisions of the I.T. Act. Form No.15G with PAN / Form No.15H with PAN / Certificate issued under Section 197(1) have to be filed with the Company before the prescribed date of closure of books for payment of debenture interest without any tax withholding. 2. In case where tax has to be deducted at source while paying debenture interest, the Company is not required to deduct surcharge, education cess and secondary and higher education cess. 3. As per Section 2(29A) of the I.T. Act, read with Section 2(42A) of the I.T. Act, a listed debenture is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer. Under Section 112 of the I.T. Act, capital gains arising on the transfer of long term capital assets being listed securities (other than a unit) are subject to tax at the rate of 20% of capital gains calculated after reducing indexed cost of acquisition or 10% of capital gains without indexation of the cost of acquisition. The capital gains will be computed by deducting expenditure incurred in connection with such transfer and cost of acquisition/indexed cost of acquisition of the debentures from the sale consideration. However as per the third proviso to Section 48 of I.T. Act, benefit of indexation of cost of acquisition under second proviso of Section 48 of I.T. Act, is not available in case of bonds and debenture, except capital indexed bonds. Thus, long term capital gains arising out of listed debentures would be subject to tax at the rate of 10% computed without indexation. In case of an individual or HUF, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate mentioned above. 4. Short-term capital gains on the transfer of listed debentures, where debentures are held for a period of not more than 12 months would be taxed at the normal rates of tax in accordance with and subject to the provisions of the I.T. Act. The provisions relating to maximum amount not chargeable to tax described at para 3 above would also apply to such short term capital gains. 5. In case the debentures are held as stock in trade, the income on transfer of debentures would be taxed as business income or loss in accordance with and subject to the provisions of the I.T. Act. ii) To the Non Resident Debenture Holder 1. A non-resident Indian has an option to be governed by Chapter XII-A of the I.T. Act, subject to the provisions contained therein which are given in brief as under: (a) As per Section 115E of the I.T. Act, interest income from Debentures acquired or purchased with or subscribed to in convertible foreign exchange will be taxable at 20%, whereas, long term capital gains on transfer of such Debentures will be taxable at 10% of such capital gains without indexation of cost of acquisition. Short-term capital gains will be taxable at the normal rates of tax in accordance with and subject to the provisions contained therein. (b) As per Section 115F of the I.T. Act, long term capital gains arising to a non-resident Indian from transfer of debentures acquired or purchased with or subscribed to in convertible foreign exchange will be exempt from capital gain tax if the net consideration is invested within six months after the date of transfer of the debentures in any specified asset or in any saving certificates referred to insection 10(4B) of the I.T. Act in accordance with and subject to the provisions contained therein. (c) As per Section 115G of the I.T. Act, it shall not be necessary for a non-resident Indian to file areturn of income under Section 139(1) of the I.T. Act, if his total income consists only of investment income as defined under Section 115C and/or long term capital gains earned on transfer of such investment acquired out of convertible foreign exchange, and the tax has been deducted at source from such income under the provisions of chapter XVII-B of the I.T. Act in accordance with and subject to the provisions contained therein. 54

59 (d) Under Section 115H of the I.T. Act, where a non-resident Indian becomes a resident in India in any subsequent year, he may furnish to the Assessing Officer a declaration in writing along with return of income under Section 139 for the assessment year for which he is assessable as a resident, to the effect that the provisions of Chapter XII-A shall continue to apply to him in relation to the investment income (other than on shares in an Indian company) derived from any foreign exchange assets in accordance with and subject to the provisions contained therein. On doing so, the provisions of Chapter XII-A shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets. 2. In accordance with and subject to the provisions of Section 115I of the I.T. Act, a Non-Resident Indian may opt not to be governed by the provisions of Chapter XII-A of the I.T. Act. In that case, (a) Long term capital gains on transfer of listed debentures would be subject to tax at the rate of 10% computed without indexation. (b) Investment income and short-term capital gains on the transfer of listed debentures, where debentures are held for a period of not more than 12 months preceding the date of transfer, would be taxed at the normal rates of tax in accordance with and subject to the provisions of the I.T. Act (c) Where, debentures are held as stock in trade, the income on transfer of debentures would be taxed as business income or loss in accordance with and subject to the provisions of the I.T. Act. 3. Under Section 195 of the I.T. Act, the applicable rate of tax deduction at source is. 20% on investment income and 10% on any long-term capital gains as per Section 115E, and at the normal rates for Short Term Capital Gains if the payee Debenture Holder is a Non-Resident Indian. 4. The income tax deducted shall be increased by a surcharge as under: (a) In the case of non-resident Indian surcharge at the rate of 10% of such tax where the income or the aggregate of such income paid or likely to be paid and subject to the deduction exceeds ` 10,000, (b) In the case of non domestic company, at the rate of 2% of such income tax where the income or the aggregate of such income paid or likely to be paid and subject to deduction exceeds ` 10,000, but does not exceed ` 100,000, (c) In the case of non-domestic company, at the rate of 5% of such income tax where the income or the aggregate of such income paid or likely to be paid and subject to the deduction exceeds ` 100,000, % education cess and 1% secondary and higher education cess on the total income tax (including surcharge) is also deductible. 5. As per Section 90(2) of the I.T. Act read with the circular no. 728 dated October 30, 1995 issued by the Central Board of Direct Taxes, in the case of a remittance to a country with which a Double Tax Avoidance DTAA relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee. However, submission of tax residency certificate, is a mandatory condition for availing benefits under any DTAA. 6. Alternatively, to ensure non deduction or lower deduction of tax at source, as the case may be, the Debenture Holder should furnish a certificate under Section 197(1) of the I.T. Act, from the Assessing Officer before the prescribed date of closure of books for payment of debenture interest. However, an application for the issuance of such certificate would not be entertained in the absence of PAN as per the provisions of Section 206AA. Further provision of section 206AA shall not apply in respect of payment of interest on long term bonds referred in Section 194LC to a non resident, not a being a company or to a foreign company with effect from October 1,

60 iii) To the Foreign Institutional Investors (FIIs) 1. In accordance with and subject to the provisions of Section 115AD of the I.T. Act, long term capital gains on transfer of debentures by FIIs are taxable at 10% (plus applicable surcharge and education and secondary and higher education cess) and short-term capital gains are taxable at 30% (plus applicable surcharge and education and secondary and higher education cess). The benefit of cost indexation will not be available. Further, benefit of provisions of the first proviso of Section 48 of the I.T. Act will not apply. 2. Income other than capital gains arising out of debentures is taxable at 20% in accordance with and subject to the provisions of Section 115AD of the I.T. Act. 3. The Finance Act, 2013 (by way of insertion of a new section 194LD in the I.T. Act) provides for lower rate of withholding tax at the rate of 5% on payment by way of interest paid by an Indian company to FIIs and qualified foreign investor in respect of rupee denominated bond of an Indian company between June 1, 2013 and June 1, 2015 provided such rate does not exceed the rate as may be notified by the Government. 4. In accordance with and subject to the provisions of Section 196D(2) of the I.T. Act, no deduction of tax at source is applicable in respect of capital gains arising on the transfer of debentures by FIIs. 5. The provisions at paragraph ii (4, 5 and 6) above would also apply to FIIs. iv) To the Other Eligible Institutions All mutual funds registered under Securities Exchange Board of India or set up by public sector banks or public financial institutions or authorised by the Reserve Bank of India are exempt from tax on all their income, including income from investment in Debentures under the provisions of Section 10(23D) of the I.T. Act subject to and in accordance with the provisions contained therein. v) Exemption under sections 54EC and 54F of the I.T. Act 1. Under Section 54EC of the I.T. Act, long term capital gains arising to the debenture holders on transfer of their debentures in the company shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months after the date of transfer. If only part of the capital gain is so invested, the exemption shall be proportionately reduced. However, if the said notified bonds are transferred or converted into money within a period of three years from their date of acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money. However, the exemption is subject to a limit of investment of ` 5,000, during any financial year in the notified bonds. However, exemption under section 54EC is limited to ` 5,000, with effect from April 1, Where the benefit of Section 54EC of the I.T. Act has been availed of on investments in the notified bonds, a deduction from the income with reference to such cost shall not be allowed under Section 80C of the IT Act. 2. As per the provisions of Section 54F of the I.T. Act, any long-term capital gains on transfer of a long term capital asset (not being residential house) arising to a Debenture Holder who is an individual or Hindu Undivided Family, is exempt from tax if the entire net sales consideration is utilized, within a period of one year before, or two years after the date of transfer, in purchase of a new residential house, or for construction of a residential house within three years from the date of transfer. In the case of construction of residential property, capital gain exemption under section 54F is available only for construction of one residential house in India with effect from April 1, If part of such net sales consideration is invested within the prescribed period in a residential house, then such gains would be chargeable to tax on a proportionate basis. This exemption is available, subject to the condition that the debenture holder does not own more than one residential house at the time of such transfer. If the residential house in which the investment has been made is transferred within a period of three years from the date of its purchase or construction, the amount of capital gains tax exempted earlier would become chargeable to tax as long term capital gains in the year in which such residential house is transferred. Similarly, if the Debenture Holder purchases within a period of two years or constructs within a period of three years after the date of transfer of capital asset, another residential house (other 56

61 than the new residential house referred above), then the original exemption will be taxed as capital gains in the year in which the additional residential house is acquired. vi) Requirement to furnish PAN under the I.T. Act 1. Section 139A(5A) Section 139A(5A) of the I.T. Act requires every person from whose income tax has been deducted at source under chapter XVII-B of the I.T. Act to furnish his PAN to the person responsible for deduction of tax at source. 2. Section 206AA: (a) Section 206AA of the I.T. Act requires every person entitled to receive any sum, on which tax is failing which attracts tax shall be deducted at the higher of the following rates: (i) at the rate specified in the relevant provision of the I.T. Act; or (ii) at the rate or rates in force; or (iii) at the rate of twenty per cent. (b) A declaration under Sections 197A(1) or 197A(1A) 197A(1C) shall not be valid unless the person furnishes his PAN in such declaration and the deductor is required to deduct tax as per paragraph(a) above in such a case. (c) Where a wrong PAN is provided, it will be regarded as non furnishing of PAN and paragraph (a)above will apply (d) The provisions of Section 206AA shall not apply in respect of payment of interest on long term bonds referred in Section 194LC to a non resident, not a being a company or to a foreign company with effect from October 1, vii) Taxability of gifts received for nil or inadequate consideration As per Section 56(2)(vii) of the I.T. Act, where an individual or HUF receives debentures from any person on or after October 1, 2009: (a) without any consideration, aggregate fair market value of which exceeds fifty thousand rupees, then the whole of the aggregate fair market value of such debentures or; (b) for a consideration which is less than the aggregate fair market value of the debenture by an amount exceeding fifty thousand rupees, then the aggregate fair market value of such debentures as exceeds such consideration shall be taxable as the income of the recipient at the normal rates of tax Further, as per section 56(2)(ix) of the I.T Act, whether any person received any sum of money on or after April 1, 2015, as advance or otherwise in the course of negotiation for transfer of debenture(capital asset), if such sum is forfeited and the negotiations do not result in transfer of such capital asset. However, this provision would not apply to any receipt: (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in Section 10(20) of the I.T Act; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in Sec. 10(23C); or (g) from any trust or institution registered under Section 12AA. B. IMPLICATIONS UNDER THE WEALTH TAX ACT, 1957 Wealth-tax is not levied on investment in debentures under Section 2(ea) of the Wealth Tax Act,

62 1. The above statement sets out the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of debentures/bonds. 2. The above statement covers only certain relevant benefits under the Income Tax Act, 1961 and Wealth Tax Act, 1957(collectdirect tax laws law. 3. The above statement of possible tax benefits are as per the current direct tax laws relevant for the assessment year Several of these benefits are dependent on the debenture holder fulfilling the conditions prescribed under the relevant provisions. 4. This statement is intended only to provide general information to the Debenture Holders and is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of tax consequences, each Debenture Holder is advised to consult his/her/its own tax advisor with respect to specific tax consequences of his/her/its holding in the debentures of the Company. 5. The stated benefits will be available only to the sole/ first named holder in case the debenture is held by joint holders. 6. In respect of non-residents, the tax rates and consequent taxation mentioned above will be further subject to any benefits available under the relevant tax treaty, if any, between India and the country in which the non resident has fiscal domicile. 7. In respect of non-residents, taxes paid in India could be claimed as a credit in accordance with the provisions of the relevant tax treaty. 8. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to changes from time to time. We do not assume responsibility to update the views consequent to such changes. We shall not be liable to any claims, liabilities or expenses relating to this assignment except to the extent of fees relating to this assignment, as finally judicially determined to have resulted primarily from bad faith or intentional misconduct. We will not be liable to any other person in respect of this statement. For VIJAYAKUMAR & EASWARAN CHARTERED ACCOUNTANTS FRN : S CA. K. EASWARAN PILLAI, FCA SENIOR PARTNER Membership No Place: Cochin Date: September 2,

63 OBJECTS OF THE ISSUE Our Company is in the business of gold loan financing and as part of our business operations, we raise/avail funds for onward lending and for repayment of interest and principal of existing loans. Our Company proposes to utilise the funds which are being raised through the Issue, after deducting the Issue Net Proceeds ` 30,000 lacs, towards funding the following objects (collectively, referobjects 1. For the purpose of onward lending and for repayment of interest and principal of existing loans; and 2. General Corporate Purposes; The details of the Proceeds of the Issue are set forth in the following table: (in ` lacs) Sr. No. Description Amount 1. Gross proceeds of the Issue Up to 30, (less) Issue related expenses Net Proceeds Up to 29,603 Requirement of funds and Utilisation of Net Proceeds The following table details the objects of the Issue and the amount proposed to be financed from the Net Proceeds: Sr. No. Objects of the Fresh Issue Percentage of amount proposed to be financed from Issue Proceeds 1. Onward lending and for repayment of interest and atleast 75% principal of existing loans 2. General Corporate Purposes* upto 25% Total 100% *The Net Proceeds will be first utilized towards the Objects mentioned above. The balance is proposed to be utilized for general corporate purposes, subject to such utilization not exceeding 25% of the amount raised in the Issue, in compliance with the Debt Regulations. Funding plan NA Summary of the project appraisal report NA Schedule of implementation of the project NA 59

64 Other Confirmation No part of the proceeds from this Issue will be paid by us as consideration to our Promoter, our Directors, Key Managerial Personnel, or companies promoted by our Promoter except in the usual course of business. The Issue Proceeds from NCDs allotted to Banks will not be utilized for any purpose which may be in contravention of the RBI guidelines on bank financing to NBFCs including those relating to classification as capital market exposure or any other sectors that are prohibited under the RBI regulations. Further our Company undertakes that the Issue proceeds from NCDs allotted to banks shall not be used for any purpose, which may be in contravention of the RBI guidelines on bank financing to NBFCs. 60

65 SECTION IV - ABOUT OUR COMPANY INDUSTRY Muthoottu Mini Financiers Limited The following information includes extracts from publicly available information, data and statistics derived t been prepared or independently verified by the Company, the Lead Manager or any of their respective affiliates or advisors. Such information, data and statistics may be approximations or may use rounded numbers. Certain data has been reclassified for the purpose of presentation and much of the available information is based on best estimates and should therefore be regarded as indicative only and treated with appropriate caution. Indian Economy Overview The Indian economy has been on a bumpy ride over 9% during to But with the onset of the global financial crisis, this high growth phase ended in 2009, with growth taking a dip to 6.7%. Fiscal and monetary stimuli propped the economy back on its legs in and But with the effects of these steroids fading away, the economy has slipped down once again. In the last two fiscals ( and ) growth has weakened to 4.5% in and 4.7% in At the sectoral level, industrial output growth took the sharpest hit. From a peak of 9.7% in the high growth years, industrial output growth fell to 1% in and 0.4% in This also led to a drop in its share in GDP from 29% in 2008 to 26% in Agriculture, accounting for 14% of the GDP, fared better than industry. However, by itself, growth in agricultural output slowed to 3.2% during to from 4.9% during to The services sector, with the largest (60%) share in GDP, edged down from over 10% (over to ) to 6.8% in The global economy has played a part in the recent downturn witnessed in India. Global growth fell from annual average of 4.8% (during 2003 to 2007) to 2.9% in 2013, having a bearing on partners witnessed slower growth resulting in lower consumption demand. The Eurozone economy contracted by 0.7% in 2012 and 0.5% in 2013, while in the US growth edged down to an average of 1% over 2008 to 2013 from 2.7% in the preceding six years. In Asia, output growth in China lowered to 7.7% for the past two years (2013 & 2014) from over 9% previously. That said the International Monetary Fund (IMF) estimates that while one-thirds of the slowdown in India can be attributed to global factors, the rest 2/3 is due to the domestic environment. These include domestic policy logjams, stalled projects and policy uncertainties in recent years. With a stable government, might just prove to be game changer for the Indian economy. Outlook and Risks A decisive election mandate has provided the new government the ability to address the current issues more effectively. GDP growth in most certainly has an upside from where we stand today. According to CRISIL Research, GDP growth can rise to 5.5% this fiscal, as a result of industrial pick-up due to higher exports and domestic investment. The IMF estimates global output to rise to 3.6% in 2014 and 3.9% in 2015 from 3% in However, sub-normal monsoon this year, will cap overall GDP growth. 61

66 Indian GDP growth past trend and outlook Real GDP, % y-oy V-shaped recovery from global crisis stimulus support global crisis Rate hikes, global slowdown, domestic Debottlenecking of policy inaction projects, stable government, lower inflation * F F Note: Forecasts are from CRISIL Research Source: Mospi, CRISIL Research In India, a pick-up in growth will be aided by industrial pick-up due to higher exports and domestic investment. Several small steps announced by the government to improve the ease of doing business, are lifting investor sentiment - results of business confidence surveys are proof of that. Speedier implementation of stalled projects and gradual easing of mining bans will help further. We also expect some rebound in services growth, especially in sectors such as trade, transport and banking in , led by a rise in exports (in IT/ITES) as well as a positive rub off from industrial output growth. Easing inflation will also aid a recovery. Overall in the base case, we expect GDP growth to improve to 5.5% in While agricultural output growth at 1% will play spoilsport, industry will revive and expand by 3.6%. We expect the services sector to grow by 7.3% in The upside to this growth forecast is limited. This is because, even with an improvement in private sector investments due to the recent policy momentum, the benefits will take time to take full effect because of the long gestation periods involved and a sharp narrowing of project pipelines. In addition, the financial sector is not in a position to aggressively bankroll growth unless significant cleansing of their balance sheets (especially infrastructure loans) is undertaken. On the downside, risks to our forecast include weak monsoons, a failure to debottleneck the economy (clearing stalled projects and boosting mining) and a slippage in global economic growth. A sub-normal monsoon is a highly probable risk given the rainfall deficiency of 18% so far, which will affect agriculture GDP growth and stoke inflation. Consumer Price index (CPI) inflation has remained above 9% for the last two fiscals, standing at 10.2% in and 9.5% in This has been driven by higher food inflation. Wholesale price index (WPI) also represents a similar trend. WPI inflation averaged at 7.4% in and 6% in In a base case scenario, assuming a normal monsoon, WPI inflation is expected to ease to 5% in Healthy reservoir levels, owing to good monsoons last year will help agriculture production and hence food inflation. Moreover, a strong base effect, lagged impact of monetary policy rate hikes and fragile demand will all pull down inflation in as compared to previous readings. We expect CPI inflation at 8% average for The Urjit Patel Committee has recommended that RBI should bring down CPI inflation to 8% over the next 12 months, and to 6% over the next 24 months, before formally adopting the long-term target of 4% (with a band of +/- 2%). Thus interest rates are unlikely to come down in The Committee has also advocated that the real policy rate should be positive, implying that the repo rate (currently at 8%) should be higher than expected 62

67 CPI inflation (expected to average at similar levels in ). In other words, there is little scope for monetary policy to boost growth in Overall, we expect the Reserve Bank of India (RBI) to keep policy rates on hold for this fiscal as inflation is expected to fall in line with its target of 8%. However, risks of a failure of monsoons and sticky core inflation will not allow the RBI to start lowering rates as of yet. The repo rate provides a floor for the benchmark G-sec yields. We expect 10-year benchmark G-sec to settle at 8.5% by March 2015 as compared to 8.8% in March This is premised on easing liquidity conditions, lower inflation, higher deposit growth, improving incomes and a better investment climate. Over the medium term ( to ) we expect GDP growth could rise to 6.5%. There are many factors that will be needed to achieve this growth. If the current momentum on project clearances continues and results into completion of stalled projects, capital efficiency will rise. This will invite more investments and lead to capital accumulation. A decisive mandate is expected to hasten pending reforms such as the implementation of the Goods and Services Tax (GST), clarity on land acquisition and environmental clearances, and ensure better fiscal and monetary policy coordination. This will improve private sector sentiments. In addition, significant cleansing of bank balance sheets (distressed assets sales + capital infusion) and an improvement in the process of asset- Non Banking Financial Institution structure in India Indian financial system includes banks and non-bank financial institutions. Though banking system remains dominant in financial services, non-banking financial institutions have grown in importance by carving a niche for themselves in the under-penetrated regions and unbanked segments. Structure of Non-banking financial institutions in India Non Banking Financial Institution Non Banking Financial Company (NBFC) All India Financial Institutions (RBI) Stock exchanges, NBFC-Deposit taking (RBI) NBFC Non Deposit taking (RBI) Nidhi companies / Chit fund (GOI) Insurance Company (IRDA) brokers, merchant banking companies etc (SEBI) Housing Finance Company (NHB) Loan Company Investment Company Loan Company Investment Company Asset Finance Company Residuary NBFC Asset Finance Company Infra Finance Company Core Investment Company Infrastructure Debt Fund Microfinance Factors Note: The regulatory authority for the respective institution is indicated within the brackets All India Financial Institutions includes NABARD, SIDBI, EXIM Bank Source: RBI, CRISIL Research 63

68 NBFCs an important part of credit system The Indian economy has witnessed high growth rates in the past decade or so. Financing needs also have risen commensurately and will continue to increase in order to support economic growth. Non-Banking Financial Companies (NBFCs) have been playing a complementary role to the other financial institutions like banks in meeting the funding needs of the economy. They help fill gaps in the availability of financial services with respect to the products as well as customer and geographical segments. NBFCs over the years have played a very vital role in the economy. They have been at the forefront of catering to the financial needs of the unbankable masses in the rural and semi-urban areas. Through strong linkage at the grassroot level, they have created a medium of reach and communication and are very effectively serving this segment. Thus, NBFCs have all the key characteristics to enable the government and regulator to achieve the mission of financial inclusion. While the number of registered NBFCs has declined from 12,968 as of March 2007 to 12,225 as of March 2013, the loans outstanding have grown at ~22 per cent during this period. As of March 2013, NBFCs account for almost 16 per cent of the Rs 62 trillion overall systemic credit. Going forward, NBFCs will have to renew the focus on their core strengths amidst challenging regulatory scenario, diversify their portfolio and create a niche with new offerings, to grow in this competitive financial market. Share of NBFC in systemic credit 100% 80% 60% 85% 84% 84% 40% 20% 0% 15% 16% 16% P NBFC credit Banking credit Note: Co-operative banks not included in banking credit Source: CRISIL Research The importance of NBFCs can also be emphasized by their close linkage to the banking system. Banks account for almost one-third of the borrowings (see figure below) of NBFCs. 64

69 Borrowing mix of NBFCs ( ) Others 14% Deposits 6% Debentures 47% Commercial paper 4% Banks and financial institutions 29% Note: Borrowing mix considered for a NBFC-D, NBFC-ND-SI (which account for more than 90 per cent of NBFC assets) as well as Housing Finance Companies (HFCs) Others include inter-corporate borrowings, sub-ordinated debt, borrowings from government etc Source: RBI, CRISIL Research Given the rising dependence on bank borrowings, the regulations of systemically important NBFCs are converging with that those of banks. Bank lending to NBFCs (Rs bn) 3,500 3,000 2,500 2,278 2,570 2,946 70% 60% 50% 2,000 1,842 40% 1,500 1, ,134 30% 20% % - Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Bank credit to NBFC Growth, y-o-y 0% Source: RBI, CRISIL Research Classification of NBFCs regulated by RBI NBFCs have been classified on the basis of the kind of liabilities they access, the type of activities they pursue and based on their perceived systemic importance. Housing finance companies have been excluded in this section as they are governed and regulated by National Housing Bank (NHB) and not RBI. Liabilities based classification NBFCs are classified on the basis of liabilities in to two broad categories a) deposit taking and b) non-deposit taking. Deposit taking NBFCs (NBFC D) are subject to requirements of capital adequacy, liquid assets maintenance, and exposure norms etc. 65

70 Further, in 2006, non-deposit taking NBFCs with asset size of Rs 1 billion and above were labeled as - ND SI) and prudential regulations were made applicable to them. Classification of NBFCs based on liabilities NBFCs (12,225) Deposit taking (NBFC D) (254) Non-deposit taking (11,971) Systemically important (NBFC - ND-SI) (418) NBFC ND (11,553) Note: Figures in brackets represent number of entities registered with RBI as of March 2013 Source: RBI, CRISIL Research Category-wise share in NBFC assets NBFC - ND, 10% NBFC - D, 9% Source: RBI, CRISIL Research Over the last few years, NBFC ND SI sector has seen substantial proliferation in their business and currently constitutes almost 80 per cent in total assets of NBFCs. Activity based classification Asset Finance Company (AFC): An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising there from is not less than 60 per cent of its total assets and total income respectively. Investment Company (IC): NBFC - ND - SI, 81% IC means any company which is a financial institution carrying on as its principal business the acquisition 66

71 of securities, Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of ` 300 crore, c) has a minimum credit rating of a CRAR of 15 per cent. Systemically Important Core Investment Company (CIC-ND-SI) : CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:- a. it holds not less than 90 per cent of its total assets in the form of investment in equity shares, preference shares, debt or loans in group companies; b. its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60per cent of its total assets; c. it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment; d. it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies. e. its asset size is Rs 100 crore or above and f. it accepts public funds Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less than 85per cent of its assets in the nature of qualifying assets which satisfy the following criteria: a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ` 60,000 or urban and semi-urban household income not exceeding ` 1,20,000; b. loan amount does not exceed ` 35,000 in the first cycle and ` 50,000 in subsequent cycles; c. total indebtedness of the borrower does not exceed ` 50,000; d. tenure of the loan not to be less than 24 months for loan amount in excess of ` 15,000 with prepayment without penalty; e. loan to be extended without collateral; f. aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs; g. loan is repayable on weekly, fortnightly or monthly installments at the choice of the borrower Non-Banking Financial Company Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 75 percent of its total assets and its income derived 67

72 from factoring business should not be less than 75 percent of its gross income. Key regulations pertaining to NBFCs Given the importance of NBFCs in financial system especially by accessing public funds and interconnectedness with banking, they are subject to prudential regulations by the Reserve Bank of India (RBI) as given below. Regulatory distinction between banks and NBFCs NBFC - ND - SI NBFC - D Banks (Basel - III) Minimum net owned funds Rs 20 million Rs 20 million Rs 5 billion Capital adequacy 15.0% 15.0% 9.0%* Tier - I capital 7.5% 7.5% 7.0%* Cash Reserve Ratio (CRR) n.a n.a 4.0% Statutory liquidity ratio (SLR) n.a 15.00% 22.0% Asset classification 180 days 180 days 90 days Standard asset provisioning 0.25% 0.25% 0.40% *under phase-wise implantation of Basel III by March 2018; numbers are excluding capital conservation buffer of 2.5% Source: RBI, CRISIL Research Gold loan Industry Gold loans market exhibited strong growth up to Possession of gold has been a symbol of prosperity in India and is considered the safest form of investment that provides a strong hedge against inflation. Gold has been always a highly coveted product not only in the form of jewellery, gold bars or bullion, but is also readily acceptable as collateral for the lenders because of its highly liquid character. In India, it is believed that most of the gold is held by people in rural areas and in many cases this is the only asset they have in their possession though in small quantity. In cases of crop failure or some medical exigency people in rural areas can raise cash quickly from pawn-brokers and money-lenders, in absence of adequate access to banking facilities. The unorganised sector has traditionally dominated the gold loans market in India for many decades and still commands a share of nearly 75 per cent. Money lenders and pawn brokers lay the ground rules in rural areas and provide loans against jewellery to families in need at interest rates exceeding 30 per cent. These operators have a strong understanding of the local customer base and offer an advantage of immediate liquidity to customers in need without any elaborate formalities and documentation. However, these players are not regulated, leaving the customers vulnerable to exploitation. Seizing the vast untapped potential available for lending against gold, organised players became more aggressive in the gold loans market and a significant part of the gold loans is believed to have shifted from the unorganised lenders to the organised lenders, thus fuelling a strong growth in the organised market in the past few years. The organized gold loan market in India grew at a tremendous pace of 76 per cent between and The major players in the organised gold loans market in India are commercial banks, cooperative banks and gold loan NBFCs. Growth stuttered post regulatory curbs The rapid growth of gold loans became a cause of concern for the Reserve Bank of India (RBI) because of a host of reasons. The central bank expressed concern over the huge borrowing of public funds by gold loan over 90 per cent of the assets are concentrated only in gold jewellery loans. Further, RBI wanted to ascertain whether these companies ensured strong safety procedures, corporate governance and internal control processes, as part of the large-scale branch expansion. These factors prompted the central bank to progressively tighten regulations on gold loan companies. The measures announced by RBI especially for gold loan NBFCs include enforcing cap on the loan-to-value (LTV) to 60 per cent (currently 75 per cent), guidelines on fair practice codes to ensure better corporate 68

73 governance, guidelines on auctioning process, curb on lending against bullion or gold coins. In September 2013, RBI issued new regulations for NBFCs, which included adoption of a uniform valuation methodology, prior approval for branch expansion and disbursement of high value loan of Rs one lakh and above only through cheques. This is likely to weaken their position vis-a-vis banks and pawn brokers / money-lenders. These measures impacted the growth of gold loan market as the Asset under management (AUM) in , combination of these measures coupled with a drop in gold prices resulted in the gold loan AUM de-growing by 2 per cent. As NBFCs AUM de-grew by 18 per cent, stable growth in banks AUM restricted any further decline. Organised gold loan sector assets under management (AUM) growth (Rs bn) 2,000 1,865 1, % 1,600 1, % 80% 1, % 40% 20% 0% - Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14-20% Gold loan market Growth, y-o-y (RHS) Note: includes bank lending to agriculture where gold is kept as collateral Source: CRISIL Research Organised sector (banks and NBFCs) is expected to witness lower growth in the near term despite huge opportunity in terms of lower penetration. Over the longer term, however, enhanced transparency envisaged by the guidelines will strengthen the confidence of stakeholders in the sector. NBFCs enjoy almost one-fourth market share The gold loan NBFCs and banks operating in the gold loans segment have different approaches and philosophy which can be seen in the interest rates, ticket sizes and loan tenure for different categories of lenders. Gold loans NBFCs view gold loans as their focussed business and have, therefore, built their service offerings through investment in manpower, branch expansion, aggressively reaching out to potential customers and collateral safeguarding. Banks, on the other hand, view gold loans for agriculture as a safer means to meet their priority sector lending targets. Further, even for non-agriculture gold loans, their target clientele is the more organised segment or their existing customers, given that they are unable to offer the level of flexibility and rapid disbursals as compared with specialised NBFCs. Consequently the non-agriculture gold loan portfolio accounts for only about one-third of the total gold-loans portfolio of banks. Organised gold loan NBFC AUMs grew largely due to an increase in their reach through an addition to the nationwide branch network to provide door-step loans. Besides, shift by customers from the unorganised to the organised sector following aggressive marketing efforts to create better awareness among the masses led to the growth of NBFCs. NBFCs positioned themselves as lenders against gold, with quick disbursals, hassle free documentation and lower interest rates than local money lenders. This enabled NBFCs to attract customers. NBFCs rapidly gained market share from around 20 per cent in to 32 per cent in and has been losing share post the regulatory curbs in

74 Movement in market share of NBFCs vis-a-vis banks 100% 80% 24% 32% 32% 28% 24% 60% 40% 76% 68% 68% 72% 76% 20% 0% Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Bank NBFCs Note: About 2/3rd of bank portfolio is classified as agriculture lending Source: CRISIL Research South to remain key market; North and West are emerging markets Demand for gold has a regional bias with south Indian states accounting for 40 per cent of the annual demand, followed by the West (25 per cent), North (20-25 per cent) and East (10-15 per cent). The market is very well established in the southern states of India, which account for the highest accumulated gold stock. Most households in these states have gold holdings in the form of gold ornaments, coins, bars, etc. Traditionally, gold holders in southern India are more open to accepting and exercising the option of pledging gold than other regions in the country which are reluctant to pledge jewellery or ornaments for borrowing money. Regional Gold demand Region-wise Gold loan market East, 13% West, 9% East, 4% West, 25% South, 40% North, 16% North, 23% South, 71% Source: CRISIL Research A higher proportion of gold stock and consumer preference to pawn gold to raise money have led to the portfolio being heavily in favour of the southern region with almost 71 per cent of the loans originating from the southern states of Tamil Nadu, Kerala, Andhra Pradesh, Karnataka and Pondicherry. Despite attempts by players to expand in certain pockets of northern and western India, historically, the market has remained concentrated in southern India. However, this trend is changing gradually, as witnessed in the strong expansion of branches of the leading gold loans providing NBFCs in Northern and Western India. The southern market, which already account for an estimated 71 per cent of the gold loan portfolio, will remain the key market. But, the highly underpenetrated markets in the northern and western regions, which have seen players enter the fray in the past 1 to 2 years, will offer growth opportunities in the longer term. 70